The pound remains highly vulnerable – despite recent gains

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02 Sep, 2020

The pound remains highly vulnerable – despite recent gains

The pound remains highly vulnerable- despite rising sharply in recent days – and families and investors need to avoid complacency about possible significant drops, warns the CEO of one of the world’s largest independent financial advisory organisations.

The warning from Nigel Green, CEO and founder of deVere Group, comes as the pound sterling hits a 12-week high against the euro and new yearly highs against the U.S. dollar.

Mr Green says: “The pound has been on a pretty impressive run lately as investors’ appetite for risk has improved, supported in part by stronger than expected data.

“However, it’s essential that a close eye is kept on the trajectory of the pound as they could be caught off guard if their investment portfolio is not properly diversified.

“Right now, complacency should be avoided amid real and growing concerns that a sell-off could be on the horizon.”

He continues: “The threat of major tax hikes being announced in the UK’s Budget in November, and the stalled Brexit trade negotiations, which are really up against the clock now, are important reasons to remain cautious on the pound.

“Also, the UK started the pandemic with government debt at a higher level than many other G10 nations.  This has grown considerably due to the fiscal support required to protect the economy during the lockdown. 

“Against this backdrop, there are valid questions on the longer-term sustainability of the pound’s outperformance so far this quarter.”

A significant drop in the value of the pound would contribute to reducing people’s purchasing power and a drop in living standards, observes Mr Green.

“Weaker sterling means imports are more expensive, with rising prices being passed on to consumers.

“The fall in the pound is good for exports some claim, but it must be remembered that around 50% of UK exports rely on imported components. These will become more expensive as the pound falls in value.

“A low pound is, of course, bad news for British holidaymakers and travellers going abroad, and also expats who receive UK pensions or income from Britain.”

He adds: “In addition, one of the UK’s most important sectors, financial services, will suffer from another knock to the pound because it is built on foreign investment that puts its faith in a strong pound.”

The deVere CEO concludes: “The pound is highly vulnerable with major issues looming that could affect its value. 

“These need to be monitored to mitigate risks and to take advantage of the opportunities when they arise.”