What is the strongest the Pound has ever been against the dollar?: $2.65 US$/£ (March 1972)
What is the exchange rate today: British Sterling Pound/USDollar?: $1.31 US$/£ (March 2022)
After 50 years, the Sterling Pound value has reduced 50% compared to the US Dollar.
The question now is if the trend of the last month could lead to reaching the lowest the Pound has ever been against the dollar? ($1.05 US$/£ on February 1985)
The Pound to Dollar rate reached an all-time low of $1.054 on 25th Feb 1985. The fall in the rate was more a function of US Dollar strength than British Pound weakness: "A doubling in the oil price led to high inflation in the 1980s. To combat inflation, the US Federal Reserve raised interest rates above 20%. This led to huge international capital inflows into the US and a surge in the value of the Dollar". https://www.keycurrency.co.uk/gbp-to-usd/
The war in Ukraine could create the perfect storm together with the effects of Brexit and COVID19.
How did Brexit affect GBP to USD? The British Pound fell 13% against the US Dollar in the two weeks following the Brexit referendum. The Pound fell in value as Brexit created uncertainty in the UK for trade, emigration, and the legal system going forward.
How did Coronavirus impact GBP to USD? The GBP to USD exchange rate fell 12% within the space of two weeks in March 2020. Investors sold the Pound in favor of the perceived safety of the US Dollar.
How will Ukraine war impact GBP to USD? The GBP to USD exchange rate could fall 12%-13% within the space of the coming two weeks of March-April 2022?
As of today, since 22022022, the GBP has devaluated 4% from 1,36 to 1.31, with a low of 1.30 on March 14, 2022. In March 2020, in the midst of the Coronavirus crisis, it reached 1.16 (on March 20, 2020). If this week the GBP continues the trend of the last year, we could see levels of $1.20 US$/£ (in March or April 2022) which is the level required to create the 12% devaluation since the start of the Russian invasion.
It is difficult to predict whether the Pound to Dollar rate will reach again the all-time low of $1.054 on 25th Feb 1985; nevertheless, the fall in the rate could again be more a function of US Dollar strength but this time could get accompanied by Geo-Politics in Europe that could cause British Pound weakness.
As long as the oil price (Brent) is moving over 100 GBP per Barrel, that will lead again to high inflation like in the 1980s. To combat inflation, the US Federal Reserve has announced again that it will raise interest rates.
If the Federal Reserve does what the market expects, that could lead to new international capital inflows into the US and a surge in the value of the Dollar. The Euro is not useful for analyzing the long run (e.g. more than 20 years) so, it is better to analyze the USD compared to the GBP.
President Zelensky in Ukraine is talking about the need for success in dialogues with Russia in order to avoid World War III. By tracking Oil Prices, Interest Rates, and the USD/GBP Exchange Rate, we can see how the dialogue is advancing and how could we gain optimism as we all want.
Let us hope for the best and let's hope for a GBP that gains soon strength because that is a leading indicator (its level and trend) in order to run away from Stagnation.
Roberto F. Salazar - Córdova
(+) HEXAGON GROUP
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