Published On: Mon, Mar 11th, 2024

Huge boost for Brexit Britain as pound storms ahead of nearly all global currencies | Personal Finance | Finance

Brexit Britain has been given a huge boost as sterling is beating more than 90 percent of the world’s currencies. The UK economy is rebounding from last year’s lacklustre third quarter performance, after a study of 140 global foreign exchange rates tracked by Bloomberg showed only 11 currencies have outperformed sterling this year.

Analysts have said sterling’s strength is down to Britain’s economy looking more resilient than had previously been feared.

Laith Khalaf, Head of Investment Analysis at AJ Bell, told sterling’s strength should bring down some prices.

He said: “The pound has been on a bit of a charge over the last six months because sticky inflation still requires tight monetary policy.

“Inflation has fallen away faster in the US and the Eurozone, and so markets have started to price in interest rate cuts to a greater extent than they have in the UK.”

Mr Khalaf said the upwards swing also represents a rebound from a poor third quarter last year which saw the currency weaken considerably.

He added: “The spring in sterling’s step should help to push inflation down given the price of goods imported in dollars and euros is now that much cheaper.”

Marco Zanni, leader of the Identity and Democracy group in the European Parliament, said: “And even today, the disaster of Brexit arrives tomorrow.”

Bloomberg reported that the pound’s performance looks set to keep the Bank of England from cutting interest rates for longer than counterparts, including the US Federal Reserve and European Central Bank.

Sterling benefited last week from dovish tones from both the ECB and from Fed boss Jerome Powell, who said a rate cut is still expected in the US this year.

ECB President Christine Lagarde said at a news conference the central bank was “making good progress” in pushing down inflation to its two percent target but that the EU is “not there yet”.

Traders expect Threadneedle Street to beging cutting in August, where the Fed and ECB could cut in June.’s Personal Finance editor Harvey Jones explained that as the UK is up almost five percent against the euro, holidays to Spain, France, Italy and Greece are much better value.

“It may be worth making a beeline for Turkey where Brits get a staggering 73 percent more for their money than a year ago, as the Turkish lira plunges,” he said. “They’ll feel far richer over there than they do at home.”

Other destinations where your money will go further include Egypt and the Caribbean.

Jones continued: “Or maybe consider Egypt instead, where the pound is worth 87.8 percent more than a year ago. Purchases of the Egyptian pound have rocketed 500 percent as a result.

“The pound goes 20 percent further in Kenya and Brits are responding with currency sales also up 500 percent.

“The Caribbean is dramatically cheaper and holidaymakers are snapping up the East Caribbean dollar, used in St Lucia, Antigua and Grenada, as well as the Barbados dollar.”

Athanasios Vamvakidis, Head of G-10 Currency Strategy at Bank of America, told Bloomberg he sees the pound rising to $1.37 by the end of the year.

He said: “The data mix is getting better, which supports GBP, particularly given a bearish consensus.”

Last week sterling rose to around $1.29, recording its highest level in seven months and best week since November versus the dollar.

Data due in the coming days may help strengthen those gains and signal further that the British economy is staging a comeback.

BoE Governor Andrew Bailey said in February there had been encouraging signs on key indicators in the labour market and services prices.

He rang a note of caution though by stressing policymakers are looking for evidence progress can be maintained.

Higher interest rates dampen inflation by making it more expensive to borrow and buy things on credit, reducing demand for goods. But high rates can weigh on economic growth, too.

In Europe, inflation was down to 2.6 percent in February, well below its peak of 10.6 percent in October 2022.

UK inflation is set to drop below the Government’s two percent target rate within a “few months”, according to the Office for Budget Responsibility.

Interest rate hikes by the Bank of England – which took the figure to a 15-year high of 5.25 percent – have helped to quash inflationary pressure.

The OBR has said it expects CPI (Consumer Prices Index) inflation to average 2.2 percent this year, down from a previous forecast of 3.6 percent.

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