The Pound is in for a bumpy ride this autumn – Op Ed

Hugh Palmer

In 2020 the Pound plummeted against the US Dollar to levels not seen since the 1980s. It fell to as low as $1.15 at one point in March, before again steadily clawing its way back up again to around $1.34

By Hugh Palmer, Independent Analyst.

Most major currencies have experienced – let’s say – quite an interesting time of it 2020. The headlines about the US Dollar back in March, for example, were all about the greenback’s strength as investors ploughed into what was viewed as a safe-haven currency. In July and August, however, the Dollar almost felt toxic as it fell back to 2020 lows against a basket of other major currencies.

It’s gained some of its strength back in September at the time of writing, but there are other hurdles (inflation, the looming elections) that could weight upon it. 

While the greenback’s weakness was perhaps the story of the summer, there have been few currencies as interesting to watch over the last few years. It’s well-noted how the Pound was sold-off in June 2016 after the Brexit vote was confirmed. However, despite declines that lasted right through to the autumn of that year, the Pound largely clawed its way back to respectability.

The zenith of that comeback came when Boris Johnson secured an 80-seat majority in the 2019 elections. His mantra of “get Brexit done” seemed to be shared by the markets wearied by three and half years of stalling. 

Pound fell to 1980’s levels 

In 2020, however, the Pound plummeted against the US Dollar to levels not seen since the 1980s. It fell to as low as $1.15 at one point in March, before again steadily clawing its way back up again to around $1.34. The differences were not just as stark versus the Euro and Japanese Yen, but a similar pattern ensued – with a terrible spring and a wonderful summer for the Pound. 

Against currencies like the NZD, the Pound lost out after the Brexit vote, seeing a steep decline over the summer of 2016. As with the sterling’s performance against most peers, it clawed its way back up after the Brexit Withdrawal Bill was signed in 2019. In 2020, it has been all over the place, and for most Kiwis, it would seem to be preferable to try their luck on the turn of a blackjack card at rather than predict their currency’s moves against the Pound. It has been much easier to make sense of the Pound’s movements within major currency pairs like GBP/USD and EUR/GBP. 

However, as we look towards the autumn, the Pound’s big summer of gains is fading – fast. It’s shed around 4% of its value against the US Dollar in the first ten days of September, and most analysts are predicting more woe.

The problem is Brexit, of course. It could all change, for sure, but at the moment finance experts are saying a no-deal Brexit is more likely than the UK securing a deal with the EU by the mid-October deadline. The Pound seemed to almost shrug off Brexit bad news in the first nine months of 2020, but it seems that traders are finally waking up (again) over how momentous the UK’s decoupling from the EU will be. 

Pound could rise due to Brexit deal

And yet, a note of caution to those that might see the Pound as a sell in the coming weeks. The same forces that will drag the Pound down should the Brexit talks collapse could drive the Pound up if there is a deal struck. Remember that there are politics at play here, so it is conceivable that the parties claim a deal has been struck when it is more a blueprint for further talks.

Regardless, we should take the bluster coming out of the Conservative Party over no-deal with a pinch of salt. After all, we heard similar rhetoric coming out of Downing Street this time last year, and a deal was brought together at the last minute. 

But Brexit isn’t the only thing on the menu for the Pound – the wider global economic recovery, the upcoming US elections, the Bank of England’s potential pivot to negative interest rates will also have a say. You’d have to be brave to call it one way or another, and a bumpy ride in these 

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