THE pound – this month’s worst-performing major currency – could “easily drop to $1.18” at the end of June, warns Nigel Green, the chief executive officer, CEO, of an independent financial advisory and fintech organisations.
The warnings from Green also founder deVere, come as it is revealed that the British currency shed almost 4 percent against the U.S. dollar in May and 3 percent against the euro.
Green said: “The pound is this year’s third-weakest major currency – just behind the New Zealand dollar and Norwegian krone, which have done even worse.
“The pound has been battered since the Brexit referendum in 2016 and the ensuing years of political uncertainty, losing around 20 percent of its value since the referendum.
“The Covid-19 crisis has been another hammer blow for sterling as it promoted a flight-to-safety and ramped-up the search for liquidity. This situation is a win for the U.S. dollar and, in turn, a loss for the pound.”
“There are legitimate concerns that the pound has further to fall in the next few weeks.
“It could easily drop to $1.17-$1.18 by the end of June due to renewed and heightened fears of a negative shock due to a no-deal Brexit combined with the far-reaching economic fallout of the pandemic,” he said.
Negotiations between the UK and the EU on their post-Brexit future relationship stalled on Friday with Michel Barnier, EU’s chief negotiator saying the two sides risked reaching a “stalemate.”
Boris Johnson, British prime minister, has repeatedly threatened to walk away from the talks if insufficient progress has been made by next month’s high-level negotiations. The UK has indicated the alternative of an “Australia-style” deal, a relationship where both sides trade on basic World Trade Organization terms, similar to a no-deal Brexit.
“An even weaker pound will help to reduce people’s purchasing power and a drop in UK living standards. Weaker sterling means imports are more expensive, with rising costs being passed on to consumers,” Green said.
“The fall in the pound is good for exports some claim, but it must be remembered that around 50 percent of UK exports rely on imported components. These will become more expensive as the pound falls in value.
“A low pound is, of course, bad news for British expats, amongst others, who receive income or pensions in sterling.
“The country’s financial services sector – which represents 6 percent of all economic activity – will also be adversely affected because it is built on foreign investment that puts its faith in sterling being strong.”
According to Green, “The pound will remain volatile, and is likely to become weaker in the next month. As such, it can be expected that domestic and international investors in UK assets will be seeking the available international options available to them.”
– May 19, 2020 @ 17:35 GMT |