Sterling’s strong start to 2021
The pound has enjoyed a strong start to the year, but that isn’t great news for investors.
The pound has enjoyed a strong start to the year, gaining 1.7% against the euro and 0.7% against the dollar so far. One pound currently buys €1.14. Analysts at ING think that figure could reach €1.17 later this year and €1.21 in 2022, writes Petr Krpata. “With the risk of a no-deal Brexit out of the way, the pound is now free to reap the benefits of a faster vaccination rollout”. Sterling’s exchange rate against the greenback – known in investing jargon as “cable” – is also tipped to rise to $1.50 this year, up from $1.38 currently.
Sterling’s newfound strength isn’t great news for investors. Roughly 70% of FTSE 100 earnings come from overseas, meaning they appear weaker when translated back into a rising currency. That explains why the index has continued to lag global markets, falling by about 0.7% so far this year. By contrast, the FTSE 250, which is less exposed to currency movements, has gained 3%.
If sterling’s run goes too far then the Bank of England may intervene, says Eoin Treacy of fullertreacymoney.com. Its recent discussion of negative interest rates is arguably part of an effort to “retard the pace” of appreciation, which threatens to erode UK competitiveness. The Bank of England has long been more willing than virtually any other major central bank to devalue the currency in response to crisis. Since the millennium, the pound has lost 29% against the euro and 14.5% against the greenback.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
Why wealthy whisky enthusiasts are leaving Britain
Collectables Wealthy whisky enthusiasts are heading to tax-friendly countries such as Dubai, where there is more disposable income to spend on collectable luxuries like rare whisky.
-
Zoopla: Property tax speculation creates uncertainty for a third of home buyers
Property tax rumours could impact homes valued at over £500,000, potentially triggering a housing market slowdown, Zoopla has warned
-
First Solar is set to shine – should you invest?
Solar-power specialist First Solar will benefit from Donald Trump’s policies, says Matthew Partridge
-
Electronic Arts: a winning game group
Electronic Arts is a fast-growing video-game maker which looks set for further success
-
Why strong currency is the key to upward mobility
Change your social status and your life by saving money in strong currencies, says Dominic Frisby
-
Is Donald Trump putting the US dollar in danger?
Donald Trump's administration sees one of its greatest advantages – the US dollar – as a burden. Gold is the obvious beneficiary, says Cris Sholto Heaton.
-
Airtel Africa is dialling the right numbers – should you buy?
Opinion Mobile phone services group Airtel Africa is inexpensive and growing fast
-
IonQ 'offers no quantum of solace'
Opinion Quantum computing group IonQ is inefficient, overhyped and overpriced
-
How Corpay is cashing in on expenses
Financial technology company Corpay has found a profitable niche managing corporate payments
-
Drone company Red Cat Holdings sees shares tumble
Red Cat, the unprofitable and inefficient US drone manufacturer is set to slide