News & Analysis

The Pound rally that never was

Andrew Saks, Thursday, 20 May 2021

Yesterday, an over-exuberant air of euphoria dominated the airwaves in the form of predictions of a continuing huge rally for the British Pound over the US Dollar.

The general message was a superlative-infused diatribe which painted an inflated picture of continuing strength for the Pound, perhaps brought about by the few weeks of retail therapy that the British public have been allowed to do by the draconian politicians that have kept the buying public out of the shops for over a year and that has threatened the sustainability of millions of businesses.

A three-year high was anticipated, with many reports containing hyperbole that the most glitzy of bottom-shelf tabloids would be proud of.

Yes, the British Pound did indeed reach the lofty heights of 1.42 yesterday, but the continuing rally that was bandied about with liberal abandon yesterday did not happen.

Today, the Pound is back down to 1.41.

Yes, that is still a high point, especially compared to the Pound's performance against the Dollar earlier this year, and in particular mid-April when it languished at around the 1.38 mark, but the increase in value that had speculators jumping up and down has not happened.

Perhaps the all too predictable words of Neil Ferguson, known quite aptly as 'Professor Lockdown' yesterday dented any possible notion that the British public would experience what it has taken for granted as a genuine free market economy again anytime soon.

Mr Ferguson is lobbying the government to maintain restrictions in business and personal liberties past the agreed end date in June this year, a move that was utterly predictable, but had not been factored in when the Pound begin its massive climb in value two weeks ago.

Perhaps rather oddly, one of the most used yardsticks relating to the infringements on the personal liberties of the British public over the past year has been the 'right' to go to Spain for two weeks in the summer. The hospitality industry has suffered tremendously across Europe, in many cases beyond repair.

Many of the companies that had existed in that sector prior to March 2020 are unlikely to be able to resurrect themselves after over a year of forced closures, and the business sectors that support them, including budget airlines, are in similar dire straits.

easyJet this morning reported a huge £701 million loss due to reduced service which it had to adhere to as a result of travel restrictions imposed by European governments. That is almost double its loss last year.

The company is hanging onto hopes that it can recover its position somewhat in June which is when the British government originally stated that overseas travel is allowed for leisure purposes, however the government is now beginning to predictably backtrack, which is enough to damage confidence in the strength of the Pound.

Currently, the plan to reopen most businesses in the United Kingdom on June 21 this year, but there has been enough doubt surrounding this possibility, largely stemming from previous promises to reopen which were not kept, and the last few days having been a platform for power-hungry politicians eager to find reasons to extend the burden on businesses.

What is particularly interesting is that the Pound is down against the Euro today too, standing at 1.16. This is interesting considering that most of Europe is under lockdown restrictions just as draconian as those in the United Kingdom, and the British economy has been performing better than that of mainland Europe over the past two weeks.

Rather like the tweets that have recently decimated the price of Bitcoin, perhaps some pessimistic tabloid news stories have been enough to put the brakes on a continued rally for the British Pound.

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