Surely Sterling Strength Will Stop

Sterling’s recent strength against the US dollar has been confusing. With the pound currently trading slightly above 1.62 USD, this is making UK exports even more uncompetitive and making it much harder for the UK to sell goods abroad. Goods in the US are generally far more competitively priced, some items at least 30 percent cheaper and with sterling up more than 10% since July, this does no favours for UK exporters.

This morning’s UK GDP figures were in line with expectations with a rise of 0.8% for the third quarter – although this is good news, some economists had hoped and pencilled in a 1% increase. Are there signs of a slowdown in the growth of UK plc now after the better than expected economic readings over the last six months? The Office for National Statistics said there had been a "fairly strong" performance across all sectors. The data builds on a 0.7% GDP rise in the April-June period and this is the best quarterly performance since 2010. However, the UK is still behind a number of advanced economies, such as the US and Germany, that have managed to recover more strongly over the last few years.

The US dollar has been remarkably weak over the last few months as the political showdown between the Democrats and Republicans resulting in the government shutdown and the struggle in agreeing to the US government debt ceiling has done no favours for the world’s biggest economy. This has cost billions of dollars in lost revenue and impacted US growth, which subsequently has weakened the US dollar. However, all this has been resolved – albeit temporarily until early next year and this should support the US dollar as America gets back on its feet. The Middle-East situation seems to be rather quiet at the moment with news about Syria barely newsworthy. The geo-political risks still remain in the volcano of the Middle East and any resumption of talk of an attack would quickly reverse the recent losses of the US currency as speculators would drive up the “safe haven” US dollar. One of the major currencies to weaken from an attack would certainly be Sterling.