Monthly Update: GBP Vs USD January 2021

Monthly Update: GBP Vs USD January 2021

by Richard Taylor on Jan 15, 2021

Richard catches up with Mark Ridley, co-founder & Managing Director of GreenShootsFX to take a quick look at the current state of GBP vs USD and review what's on the immediate horizon. GreenShootsFX are a corporate FX payments specialist focused on driving down margins and offering a more efficient way of moving funds internationally.

e: mark.ridley@greenshootsfx.com

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Transcription

Richard Taylor:                

Currency Maestro. Happy New Year.

Mark Ridley:                     

Happy New Year to you too.

Richard Taylor:                

So I had a great Christmas and it's been an eventful time, to say the least, we're on the other side of Brexit and I'm sure you've got something to say about that. So tell us what's going on with GBP versus USD.

Mark Ridley:                     

Yeah. While I was trying to avoid bringing up Brexit once again, I think we're going to throw that into this commentary a couple of times Richard, but Dollar Sterling, current level at the time of recording is 135.50. If I can say that correctly, and the high that we've had so far in Gen four was 137.02. And you might recall that when we had discussions back in September, the rate was actually around 127. So Brexit I've mentioned it, is a go, and that's taken the anxiety out of the market. Now that Sterling is above the 135 range, the longer term market, or sorry, the longer term target is 144, which was an old high from April, 2018. The more immediate concern is the current lockdown in the UK, which has been extended for another six weeks. How much damage that will do to an already weak economy, obviously it's yet to be seen or yet to be known.

So why do we think that Sterling will now get stronger versus the dollar and other currencies with the COVID shutdowns? Brexit has taken its toll on the economy with a few long-term relationships developing because of the uncertain outcome. Now it's time for the UK to play catch up. First, the British economy has fallen in its share of global GDP. Some say that's because the world has grown and indeed that is true, but there is room for them to gain it back with new, more focused trade deals. And since 2005, they've lost a share of the world market capitalization, falling from over 7% to 3%, their share of the global investments by British based companies. It's also fallen from roughly 10% to the 6% region. And with the world market slowly recovering, oil prices moving higher, that's definitely positive for Britain, but much more work is needed to improve their infrastructure. But we do think that the pound demand will definitely increase.

Richard Taylor:                

Okay. So no surprises, well, we already knew this. Brexit has hurt the pound and whilst there's still a lot of uncertainty on post-Brexit Britain, the sheer fact that we're through it and that uncertainty has been removed has led to an immediate boost. And really, it seems, yes, there's obviously headwinds, but also there's opportunities. Can we regain our, I was standing in the world and if we can we can, then the pound can march on stronger. What about anything else going on?

Mark Ridley:                     

Yeah, so we've got the Harris Biden administration, the America first label is gone, and a more open, softer stance on international relationships should also help Sterling. Mostly because the US dollar and the US in particular, has a high level of debt, which is going to be, excuse me, it's definitely going to play towards more taxes or higher taxes. Certainly for those earning $400,000 or more, whether that will be going monstrously higher or slightly higher, you know, we yet to see what Biden and Harris are going to put forward in that regard. But that's definitely going to support GBP and the fact that there is expected to be a weaker dollar in general for the next decade. You know, again, that's another rationale if you will, for supporting higher GDP.

Richard Taylor:                

Well, good riddance to the America first label, obviously I love America, and America you gotta put your interests first, but that particular label I'm not going to be sorry to see that go. And I do think, I think higher taxes are inevitable. I hope it's not too dramatic, but the bill for the stimulus last year has to be repaid. And I'm grateful for the stimulus. I think it saved us from a much worse fate. So, but to our point that is going to weaken the dollar, which is what we expected anyway.

Mark Ridley:                     

Yeah, we feel good about that.

Richard Taylor:                

Exactly. And combine that with better expectations for pounds, it could be a double whammy. And certainly, since we've been doing that, we've seen that trend move and we've also been saying this is what you've been suggesting and pointing towards, but we've seen that the trend of stronger pound, weaker dollar. I mean, it's a very short period of time, but we are seeing that. So yeah, along that continuum from our perspective.

Mark Ridley:                     

Yeah, absolutely. Absolutely. You know, when we got on and did our first discussion like this, what was it like three, four months ago, we were predicting that the dollar would weaken and the pound would strengthen and, you know, the data that we've been putting out as has been supporting that. So it's good to see that, you know, that we're also interpreting what's going on in the markets accurately in that, you know, it gives us a little bit of credence, but.

Richard Taylor:                

Finally, we have, I've got the crystal ball that I've always wanted.

Mark Ridley:                     

Well, you know, we'll certainly try our best if we really knew, knew, knew what was happening, then we'd be taking our crystal ball to Vegas.

Richard Taylor:                

Well, okay. Right. So either, well, thank you for that Mark and a great catch up. And either I'll see you in Vegas. We'll do this next time. Or, you know, we'll meet over zoom and do it the old fashioned way.

Mark Ridley:                     

I look forward to it either way. Thanks Richard.

Richard Taylor:                

See you soon, Mark. Bye-bye.

Mark Ridley:                     

Take care. Bye.

Richard Taylor:                

Bye.

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