GBP rally continues as British currency reaches highest level since pre-financial crisis

Britain is being heralded as a currency safe haven as the Pound continues its rally.


Will the British pound rise to 1.5 against the US dollar? It is almost there.

Today, confidence in the British pound continues as an overnight rally once again occurred, showing that the pound is becoming the subject of market confidence among traders and investors as the opinion polls on today’s referendum on Britain’s membership of the European Union show a slight preference among voters to remain a member state.

The strongest and most highly valued currency in the world surged in value by another 0.2% overnight, rising to 1.475 against the US dollar, a particularly interesting dynamic as the market backs a remain vote, especially bearing in mind the sovereign debt that the European Central Bank is saddled with.

Back in 2008, when the majority of Britain’s largest banks, some of which handle high percentages of the world’s interbank FX order flow, were nationalized following their collapse which was caused by over exposure to consumer credit defaults and aggressive expansion initiatives, the pound was at similar levels to that of today, however in the eight years since the country’s now extremely prominent and powerful financial services sector has rebuilt itself, the currency languished at lower levels than pre-financial crisis, until this week when signs of Britain potentially voting to remain in the European Union saw it rally.

Tesla vs Trading Technology
London’s fintech leaders forge ahead: Tom Higgins with his Tesla Model S

It may well be that the currency is being viewed as a potential investment favorite among European investors outside the FX industry, as Britain’s potential continued EU membership would continue to allow borderless investment by firms and investors from mainland Europe wishing to place their business in a nation with a strong and stable currency and financial markets economy, as the Euro is constrained by being the sovereign currency of many member states, its issuer, the European Central Bank being currently exposed to over a third of its entire capitalization by Greek debt.

Legacy manufacturing dominates mainland Europe’s industrial centers, its largest producers such as Germany being home to traditional motor manufacturing and it is widely known that the inability to modernize this business has led to its leaders being terrified of firms such as Tesla.

It has taken a computer software and hardware manufacturer, which is effectively what Tesla is, to disrupt the automotive industry from outside, whereas traditional motor manufacturers in Europe’s mainland have not been able to produce a product that completely revolutionizes the very own industry that it invented back in 1885 when Bertha Benz drove her husband’s newly invented automobile on what has gone down in history as the world’s very first road trip.

Times have changed…. or have they?

126 years later, the three large automobile manufacturers in Germany are still making traditional automobiles whilst America is revolutionizing the entire industry with newcomers from Silicon Valley.

Britain, by contrast to Germany, is a hotbed of technological innovation, with London’s ‘Silicon Roundabout’, the once-delapidated and now very fashionable Old Street area in Islington, nestling in the shadow of the City’s vast financial institutions, generating the new initiatives that will power the world’s financial markets business in the future from blockchain database technology that automates bank ledger operations to completely new ways of transacting between global institutions.

London’s institutional sector is going from strength to strength, and indeed new investment in fintech initiatives in London is so far in excess of that in mainland Europe that UK fintech firms had secured $5.4 billion of the $49.7 billion of global investment in financial technology between 2010 and 2015, compared with the total $4.4 billion raised across the rest of Europe.

Despite the inactivity and fiscal precipice that many EU member states find themselves on the edge of, Britain’s economy is booming and the Pound looks to increase on the basis that Europe’s astute investors are backing Britain as the crown of the union which will provide borderless business opportunities in London.

Chart courtesy of Google Finance


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