Future of Sterling? By Denning Cox
April 2019 -Given the uncertainty of Brexit and the low interest rate environment, the British Pound has weakened against most currencies and particularly against the Greenback.
As most traders refer to it, “cable” is under pressure due to the fact that the UK government has made a mess of Brexit, driven major investors out due to new legislations targeting non-domiciles and a general lack of interest in the real estate market due to high stamp duties.
“This is one of the worst periods for the UK economy”. The combination of what I define as ‘real’ inflation and the uncertainty caused by the government’s policies have driven cable to well below its purchasing power parity” said Reza Irani Kermani, CEO of Black Pearl Capital, with 29 years of experience in the financial markets.
When I asked his opinion of where cable is heading, Mr. Reza Irani Kermani replied: “The Pound’s absolute relative value against the dollar should be near the 1.5000 to 1.5300 level. In recent past, it has fluctuated between 1.1200 and 2.1000 due to fundamental news but it will ultimately get back to the 1.5000 mark. For now, cable will remain under pressure and probably test 1.2500 in the short term and possibly 1.2000. I believe the market has discounted the majority of the negative news and I don’t agree with the likes of HSBC’s who state that it will test 1.1000”.
A low pound allows for higher exports whilst imported goods cost more. The important relevant question would be: what happens if there is a “no deal” on Brexit?