If you’re a Brit living in the United States, chances are you’ve had to transfer money between the two countries at some point, in which case the exchange rate is clearly important to you. Given that, how has the pound performed in the last month, and what might happen the next? This is what I want to look at in this monthly update.
Sad to say, but if the pound rises in 2013, I don’t think it’ll be because of good news out of the UK. This is because of what’s on the menu next year for Brits still living in Blighty. The first course? A thin austerity soup, that doesn’t so much whet the appetite for what’s to come as leave you feeling queasy. For the main? Low growth chicken, all feathers and bones and not much meat. And for dessert? As much tax rise apple pie as you can manage, and then some more. Truly, not a three-course meal for prosperity.
Why am I so pessimistic, you ask? Well, a lot of it is because of what’s coming out of the Government’s own statements. As you probably know, our own Chef Osborne (aka the Chancellor) made his Autumn Statement last month, in which he first confessed he’s going to miss a key target of reducing debt as a proportion of GDP by 2015, then told us he’s extending austerity up to 2018. Hardly a vote winner, is it? Furthermore, judging from what it’s done to the UK so far (the economy is expected to shrink –0.1 percent across the whole of 2012) you can’t expect it to do the country much good next year either.
All of which, unfortunately, doesn’t add up to a rising pound.
But, of course, every cloud has a silver lining, and, in the case of the exchange rate, you may be pleased to hear that the pound rising doesn’t just depend on what’s coming out of the UK. It also depends on whether things go well or badly State-side. To be specific, it would do sterling a world of good if President Obama and company were to solve the fiscal cliff conundrum. This is because, seeing as how the US is the world’s biggest economy (at least until China catches up!), it could potentially lift the UK too.
So what are the odds of that? Well, it’s funny, because I remember reading on November 7, the day the world find out Barack Obama would stay in charge for another four years, that his first priority was the fiscal cliff. Yet it’s been a month at the time of writing and, so far as I know, neither the President nor House Speaker John Boehner are any closer to a deal. In fact, at a press conference last weekend, Mr Boehner said, “When it comes to the fiscal cliff that’s threatening our economy and threatening jobs, the White House has wasted another week.” Now, if there’s no deal, of course he’s going to say that. But it doesn’t exactly fill your heart with hope that a bargain will be made, and that bodes ill for the pound too.
Peter is an economist at foreign exchange broker Pure FX. He’s worked in foreign exchange for two years now, having previously completed a master’s degree in English Literature at the University of York. Right now he lives in Madrid, Spain, where he’s learning Spanish.
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