The bookmakers’ odds have shifted as the likelihood of Britain voting to leave the European Union (EU) has increased. That is the message from the polls and the bookies, yet sterling doesn’t agree. The media, egged on by Mark Carney, the governor of the Bank of England, routinely report that the pound is collapsing at the mere threat of a Brexit vote. The strange part of this narrative is that I am struggling to see the pound’s collapse. In reality, it fell in late 2015 – as I described at the time – and has been rallying for the past three months.
The blue line shows the pound versus the dollar and the red line versus the euro. The former bottomed in late February while the latter bottomed in early April. Either reports of sterling’s demise have either been greatly exaggerated or this leading pollster is forecasting a vote to remain in the EU While the consensus belief is that the pound is the leading pollster, there could be another explanation. Last week saw disappointing US jobs numbers, which caused the dollar to fall sharply. That’s because weak jobs will likely delay the rise in US interest rates – something we keep on hearing over and over again. Lower rates reduce the demand for dollars, and so it falls. As currencies are more or less a zero-sum game, something else must rise. Last Friday, both the pound and the euro rose against the dollar.
After a career as an officer in the Grenadier Guards, Charlie spent 17 years as the Head of Absolute Return at HSBC Global Asset Management, managing more than £3 billion in client funds.He’s known and respected as a specialist on gold, crypto-currencies and momentum investing. In fact, he’s made over 200 appearances as a guest expert on various financial television programs. Charlie is the editor of the Fleet Street Letter.
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