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.
Subscribe to 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
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex Rankine is Moneyweek's markets editor
-
Do you qualify for the Winter Fuel Payment if you live abroad?
The Winter Fuel Payment will be means tested for expats living in Europe, in line with the new rules impacting those in the UK. But a quirk in the system means not all countries are eligible.
By Katie Williams Published
-
What the Employment Rights Bill means for your job
New workplace reforms are set to give employees new rights to benefits and flexible working
By Marc Shoffman Published
-
How Finseta is cashing in on currencies
Finseta has established a foothold in the upper echelons of the market for international payments. Should you invest?
By Dr Mike Tubbs Published
-
Is the US dollar losing its appeal?
The US dollar is looking oversold in the short term and is due a bounce. What does it mean for global markets and the upcoming US elections?
By Dominic Frisby Published
-
What does a weak yen mean for Japan's economy?
The Japanese yen slumped to a 34-year low. What does a weak yen mean for inflation, interest rates and tourism in Japan?
By Alex Rankine Published
-
Why you should keep an eye on the US dollar, the most important price in the world
Advice The US dollar is the most important asset in the world, dictating the prices of vital commodities. Where it goes next will determine the outlook for the global economy says Dominic Frisby.
By Dominic Frisby Published
-
Sterling accelerates its recovery after chancellor’s U-turn on taxes
News The pound has recovered after Kwasi Kwarteng U-turned on abolishing the top rate of income tax. Saloni Sardana explains what's going on..
By Saloni Sardana Published
-
Will Liz Truss as PM mark a turning point for the pound?
Analysis The pound is at its lowest since 1985. But a new government often markets a turning point, says Dominic Frisby. Here, he looks at where sterling might go from here.
By Dominic Frisby Published
-
Are we heading for a sterling crisis?
News The pound sliding against the dollar and the euro is symbolic of the UK's economic weakness and a sign that overseas investors losing confidence in the country.
By Alex Rankine Published
-
The US dollar is rising to dangerous levels – here’s what to do about it
Analysis The US dollar is back on the rise as panicky investors head for safety. That’s rattling markets across the world, says Dominic Frisby. Here’s how to cope.
By Dominic Frisby Published