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Is now a good time to buy the British pound? Fundamentals point to caution

The COVID-19 pandemic has triggered a wave of unprecedented measures from both central bankers and governments. By stimulating economic activity and supporting…

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The COVID-19 pandemic has triggered a wave of unprecedented measures from both central bankers and governments. By stimulating economic activity and supporting households, the measures did help.

In hindsight, it isn’t easy to imagine otherwise. But it all came at a cost.

That is, unsustainable inflation.

Inflation in the advanced economies has spiraled out of control. In the United Kingdom, it has reached the double-digit territory.

The disconnect looks surreal. The Bank of England fights 10.1% inflation with 1.75% interest rates.

At the same time, it targets 2% inflation.

But why doesn’t the Bank of England raise the rates more aggressively?

The Bank of England’s challenges in normalizing policy

The Federal Reserve of the United States has embarked on an aggressive monetary policy tightening cycle to fight rising inflation. But the Bank of England, just like the European Central Bank, cannot do the same.

The macro picture looks increasingly complicated in the UK for at least several reasons.

First, there is a labor shortage while inflation is above 10%. In other words, wage pressures will further fuel inflation, and the current bank rate level is not enough to offset the rise in the prices of goods and services.

Wage growth has reached 5% in the UK.

Second, the record trade deficit and negative productivity are direct consequences of Brexit. It is still early to evaluate the full impact Brexit has on the UK economy, but the two are clear indicators that the path is not the right one.

Third, there is talk of fiscal stimulus ahead, which will further contribute to the rise in the prices of goods and services.

Finally, high European energy prices have a direct impact on UK households.

Faced with such a set of macro variables, the Bank of England has a hard time fighting inflation. This is why it has warned in the past that by the end of the year inflation will be well into double-digit territory.

As a result, the British pound is one of the weakest currencies on the FX dashboard. In fact, it trades like an emerging currency, dropping even against the euro.

In 2022, the common currency, the euro, lost more than 12% against the US dollar. At the same time, the EUR/GBP cross gained 2.34%.

The combination of the two implies that the British pound lost even more against the US dollar. Moreover, its inability to gain against the euro is striking.

After all, there is a war in Eastern Europe, one affecting more the euro area economies than the UK economy.

All in all, fundamentals point to further weakness for the British pound, as the challenges the Bank of England faces are unlikely to go away anytime soon.

The post Is now a good time to buy the British pound? Fundamentals point to caution appeared first on Invezz.

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Rare metals await judgement from US Federal Reserve

On Monday’s trading session, however, the silver market experienced a small fallback as the 50-day EMA helped the market gravitate towards the $22.50…

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October 17, 2023

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On Monday’s trading session, however, the silver market experienced a small fallback as the 50-day EMA helped the market gravitate towards the $22.50 level. The market will be under constant observation to determine if it can hold a support level.

On the Multi Commodity Exchange (MCX), India, gold prices continue to fall; analysts suspect the Navaratri festival has caused this sudden drop, particularly in local Indian areas. As of Monday, gold prices on the MCX have fallen 0.22%, with an ounce of gold weighing in at $1917.10, while silver prices have fallen 0.43% to $22.66 despite seeing a continuous rise in the first two weeks of October.

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As the week progresses, all eyes will be fixed on the US Federal Reserve as the Federal Reserve Chair Jerome Powell prepares for his decisive speech on inflation rates and interest hikes. With the minor and main support levels of these rare metals at 20.66 and 19.90, respectively, there is room for potential decline; however, all hangs in the balance until the Fed releases inflation data.

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Shell shares after new CEO’s focus on oil and gas

Experts believe that the focus of the outfit’s new chief executive officer (CEO), Wael Sawan, on key oil and gas dealings also enticed investor interest….

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October 17, 2023

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Experts believe that the focus of the outfit’s new chief executive officer (CEO), Wael Sawan, on key oil and gas dealings also enticed investor interest. During Monday’s trading, Shell’s shares climbed to 2,763 pence in London at a stage.

This share price recovery comes after multiple strategic turning points. During the pandemic, oil and gas prices plummeted. Ben van Beurden, the Shell CEO at that time, reduced the company’s dividend by two-thirds and committed to cleaner energy, pledging to achieve net-zero greenhouse gas emissions by 2050.

After taking the wheel, Sawan stuck to this green commitment while channelling greater proportions of investment into oil and gas. Analysts feel he is trying to gain investors through higher returns and an unwavering focus on financial performance and strategy.

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Higher commodity prices, especially that of natural gas in Europe, gave Shell shares a helping hand. In a Bloomberg report, analyst Allen Good confirmed the impact of this new strategy and suggested that the strategic changes announced earlier this year likely attract more investors.

He also highlighted the weaker pound and euro performance against the dollar as a driver for this company’s market performance. On Friday, Shell ended off the week at 2,722 pence per share.

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UK property prices rising at a snail’s pace

Market specialists attributed the phenomenon to the effect of higher interest rates. According to Rightmove data, house prices fell by 0.8% and agreed…

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October 17, 2023

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Market specialists attributed the phenomenon to the effect of higher interest rates. According to Rightmove data, house prices fell by 0.8% and agreed house sales declined by 17% during the 12 months leading up to October.

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In an attempt to bring inflation under control, the Bank of England raised interest rates 14 times in a row. During its September interest meeting, the institution kept the rate at 5.25%. This is, however, still the highest the interest has been since the 2008 catastrophe.

The situation also impacts renters, who face higher-priced leases as landlords battle to keep up with their mortgage payments. Other data shows that the average rent in Great Britain rose to £1,325 per month from £1,186 according to year-on-year analyses. Rightmove’s property expert, Tim Bannister, said:

Some sellers are pricing more competitively, but estate agents are reporting that others still need to adjust their expectations on the price they’re likely to achieve in this lower-activity market, where six in ten homes are now selling. In the busy post-pandemic market, we were seeing eight in ten sold.

The Guardian, citing a Hamptons analysis on UK and the Bank of England data, shows that landlords pay 40% for mortgage interest as of August 2022. The company also predicted that interest costs could escalate to approximately £20bn as fixed-interest periods come to an end.

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