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
-
Spot the Dog: £67bn in underperforming funds revealedAround 137 funds consistently underperformed their benchmark, BestInvest's Spot the Dog report finds. Which funds are in the dog house?
-
What does a BP and Shell merger mean for the UK oil industry?BP’s struggles have made it vulnerable to a takeover. Could it merge with Shell to create a British behemoth?
-
Why Wise could be worth a lot more than its share price impliesForeign-exchange transfer service Wise has the potential to become the Amazon of its sector – here's why you should consider buying this stock now
-
Rouble hits two-year low against the dollar – what does it mean for Russia's economy?New US sanctions have plunged the rouble to its lowest level since 2022. Why are investors spooked and how will this affect Putin's economy?
-
How Finseta is cashing in on currenciesFinseta has established a foothold in the upper echelons of the market for international payments. Should you invest?
-
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?
-
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?
-
Why you should keep an eye on the US dollar, the most important price in the worldAdvice 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.
-
Sterling accelerates its recovery after chancellor’s U-turn on taxesNews The pound has recovered after Kwasi Kwarteng U-turned on abolishing the top rate of income tax. Saloni Sardana explains what's going on..
-
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.
