Donald Trump doubtless sees a strong dollar as a great sign of masculinity and a great America. When the UK voted to leave the EU, GBP fell sharply and much forecasting was done about the end of the world. But what now? What about the election?
The current thinking is that more Tory seats means ‘hard Brexiters’ can be ignored by the PM. The markets want a soft Brexit. The softer a Brexit, the stronger the Pound. So if Labour shows unexpected Poll gains, then fewer Tory seats and so GBP down.
But what about the country? What is good for the UK? I don’t mean which Government, I mean which currency direction?
A weaker Pound allowed British exporters to compete on price with the rest of the EU. The Euro which includes Greece, was artificially low because of Greece and Ireland, and Portugal and Italy…The UK was unable to compete because the Pound was so much more attractive. Now we have a more level trading field. The Germans no longer have it so easy against Britain.
But the weaker Pound also meant suddenly more companies were investing in the UK because we were cheaper. This is so often missed.
A weaker Pound also led to an all time high for our stockmarket. Who cares? Well, your Pension fund, and your parents and your grandparents. It was a huge creation of wealth. How? Well, most FTSE 100 companies are big exporters, so suddenly all those USD profits, converted to even more GBP back home on the books, ie more profits in GBP. I know – finance is crazy.
The cheaper Pound was meant to mean more expensive imports – foods especially. But on the whole this is good. We want to substitute expensive foreign goods with cheaper UK ones. We also do not want a trade deficit the size of which we have – it is a debt we owe to foreigners – not good. The weaker Pound helps us.
I was with the Governor of the Bank of England, I did not have the chance to ask him his views, and he would not be allowed to tell me anyway, but I have to say, I have no ego problems with a weaker currency.
So what is the greatest danger to a weaker currency? A none hard Brexit. No one ever makes the case for a hard Brexit. What about access to the Single Market, what about immigrants here, what about people wanting to work here.
I was in favour of remain. But I have to tell you, I am relaxed about a hard Brexit. First it means the Europeans know we are willing to negotiate hard and so they have less hold on us. Second, we need to make fewer costly concessions for the perceived benefits. Third, and read this carefully, the USA is not in the EU. Let me expand, the USA is not part of the Single Market. Neither is Canada.
When you know you are leaving and have a tough negotiation ahead, starting with a hard Brexit is a better position than with unilateral concessions.
Beware the rising Pound whatever happens.
