financetom
British Pound
financetom
/
Forex
/
British Pound
/
The Pound "Shouldn't be Haunted by the Ghosts of 2022" Says Deutsche Bank
News World Market Environment Technology Personal Finance Politics Retail Business Economy Cryptocurrency Forex Stocks Market Commodities
The Pound "Shouldn't be Haunted by the Ghosts of 2022" Says Deutsche Bank
Mar 22, 2024 2:16 AM

Above: Image © Pound Sterling Live, original picture by Simon Dawson / No 10 Downing St.

On the eve of the UK budget, a Deutsche Bank analyst tackles the question of whether GBP investors ought to fear the return of the "bond vigilantes" and a repeat of the 2022 episode that saw UK bonds, FX, and stocks all materially weaken.

"This time is different, and that things ought to remain much calmer this year," says Shreyas Gopal, Strategist at Deutsche Bank in a note released ahead of Wednesday's budget announcement.

Pound Sterling and UK bonds cratered in September 2022 when newly installed Prime Minister Liz Truss attempted to push through sweeping tax cuts and spending commitments without regard to the outlook for UK finances.

The selloff in bonds signalled investors were concerned the UK risked being unable to pay its debtors, prompting the Pound to fall to multi-year lows against the Euro and Dollar.

But according to Gopal "Sterling's external vulnerabilities screen much lower now helped in no small part by the fall in energy prices."

He explains that in August 2022 the UK was spending much as 4% of GDP on net energy imports and then in early September Truss committed to a potentially unlimited USD import bill through the Energy Price Guarantee scheme.

"Not only is the current account in a better position, but the Bank of England are no longer seen as a dovish outlier, providing the pound with adequate yield support," he says. "While we were quite worried about the risks to sterling from fiscal policy ahead of the mini-budget crisis in 2022, we currently don't see the same kind of negative tail risks for sterling this time around."

Looking beyond the budget to this year's General Election, the Deutsche Bank analyst says the most likely scenario is that there's little spillover to the pound from politics, with the bar much higher to our mind than eighteen months ago.

"To be sure, with implied vol this low - especially in EUR/GBP - there may be value in cheap tail risk hedges, but for spot FX we continue to favour GBP higher. Our preferred expression remains long GBP/CHF, now up over 5% YTD inclusive of carry," says Gopal.

Above: UK (net) fuel imports had reached 4% of GDP in August 2022.

This year's election will differ from previous elections in that both parties have signalled a strong commitment to prudent management of the country's finances, with the Labour Party marking a departure from the Jeremy Corbyn era.

The party has cast itself as being pro-business, which makes for a relatively low-risk environment for businesses looking to invest.

Meanwhile, UK business investment has grown faster than any G-7 nation since the government introduced tax relief on investments in April 2021.

Should pro-business policies be expanded on by the next government, sentiment towards the Pound can improve.

Comments
Welcome to financetom comments! Please keep conversations courteous and on-topic. To fosterproductive and respectful conversations, you may see comments from our Community Managers.
Sign up to post
Sort by
Show More Comments
Related Articles >
British Pound (GBP) LIVE: Sterling Set for Fresh Bounce vs USD, Bank of England Risk Ahead
British Pound (GBP) LIVE: Sterling Set for Fresh Bounce vs USD, Bank of England Risk Ahead
Mar 22, 2024
Last Updated: 02 April 2014 Updated: Our Live coverage shows the UK pound to be in a period of consolidation at the start of April 2014. With the March PMI series missing expectations the GBP has found little by way of impetus. However, all eyes are on the release of...
The Pound "Shouldn't be Haunted by the Ghosts of 2022" Says Deutsche Bank
The Pound "Shouldn't be Haunted by the Ghosts of 2022" Says Deutsche Bank
Mar 22, 2024
Above: Image © Pound Sterling Live, original picture by Simon Dawson / No 10 Downing St. On the eve of the UK budget, a Deutsche Bank analyst tackles the question of whether GBP investors ought to fear the return of the bond vigilantes and a repeat of the 2022 episode...
British Pound Sterling Heads Sideways as Equity Markets Rally
British Pound Sterling Heads Sideways as Equity Markets Rally
Mar 22, 2024
By Gary HowesToday's Exchange Rates Below are the spot exchange rates as of the last update: Pound to euro exchange rate: Unchanged on a day-to-day basis at 1.2040.Pound to US dollar exchange rate: 0.01 pct down at 1.6390.Pound to Australian dollar rate: 0.36 pct higher at 1.8364.Pound to New Zealand...
British Pound (GBP) LIVE: Sterling in Steady Recovery After Services PMI Delivers a Blow
British Pound (GBP) LIVE: Sterling in Steady Recovery After Services PMI Delivers a Blow
Mar 22, 2024
Last Updated: 07 April 2014 Updated: The British Pound (GBP) is stable as we move into the second week of April. Selling on global equity markets has seen some relief being enjoyed against the commodity dollars. Meanwhile, we continue to see consolidation vs the Euro and US dollar. This period...
Copyright 2023-2024 - www.financetom.com All Rights Reserved