Following the recent news of a slight increase in the current account deficit, the British Pound (GBP) is currently trading against a strengthened US Dollar (USD). This has led to speculations that the GBP might depreciate as it may not be able to maintain its previous valuation if the US Dollar continues to strengthen.
Of course this is not a particular perspective which we can gain for you but it can be compared with the forecast of the economic impact and how the recent global financial crisis will impact upon the economic growth and development. All major currencies are linked and they are affected by each other. If for example the UK were to experience an increase in trade with China, the economy would grow but so would the price level.
There are several economic indicators to check on and most of them are pointing towards better growth. We can look at the output figures, we can look at consumer confidence, we can look at employment figures and many more. The strength of the global economy is even being backed up by the International Monetary Fund (IMF) who have been stating that the economic outlook is looking very bright.
In addition to this, the strong demand and supply balance of the international market mean that there is an increasing opportunity for businesses and investors to take advantage of the low-interest rates and liquidity conditions which exist. Some countries have done very well through this crisis and some have fared poorly and some countries which suffered the most have recovered very quickly and had massive growth in their export markets.
Amongst the major countries that have seen a boost in growth are the United States, United Kingdom, Japan, Italy, Germany and Ireland. However, even among these countries, many are still trying to find the optimum form of stimulus. Given the current situation, it seems unlikely that any additional stimulus from the major central banks will be forthcoming anytime soon.
The British Pound (GBP) has been one of the best performing major currencies against the USD (as shown in the previous graph). The rise in the demand for Sterling has also been matched by the strengthening USD.
One of the reasons why the British Pound (GBP) has performed well against the USD is the strong performance of the Euro. For example, during the Global Financial Crisis, the Euro appreciated against the USD whereas the British Pound suffered steep falls. But even after all this depreciation, the GBP continued to recover and is now up over 2% since the onset of the financial crisis.
Another benefit of trading the British Pound (GBP) against the USD is that the currency has strong support from the European Central Bank (ECB). There are a number of reasons why the ECB decided to support the GBP. First of all, it has been seen that an appreciation of the GBP may have implications for their own exports and therefore if their exports are depreciated, it may have a negative impact on their balance of payments.
Another reason why the ECB is supporting the Euro is that it has seen that countries which have entered into fiscal austerity programmes may not have the capacity to do so in the future. This has prompted the ECB to protect the value of the Euro by allowing for a rise in the UK Pound’s value. In order words, the Euro and the British Pound are both up.
Finally, as discussed above, the global economic crisis has increased consumer confidence around the world. Therefore, the global demand for goods, commodities and services is on the rise.
The British Pound (GBP) is on a strong upward trend and as a result, we can expect to see a further upward move on a monthly basis. It is possible that a new high may be achieved and this is very much dependent on the economic scenario in each country.
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