What’s really driving the British Pound right now

Some pretty clear trends have emerged in the past few sessions.

The Pound is clearly down against the Euro and US Dollar, but clearly up against the Australian, Canadian and New Zealand Dollars.

The explanation to that mystery lies in the pecking order of currencies.

When geopolitical risks rise (code for war), the big money (think billions) moves away from some currencies and into others.

The US Dollar tends to be a big beneficiary – it’s the world’s reserve currency. The Euro (despite being only 24 years old) is also considered a solid bet.

We’ll call the Pound a ‘mid-table’ currency among the heavyweights and the more commodity-driven, British colony currencies (AUD, CAD and NZD) are highly sensitive to sentiment (they get dumped).

You could say that knee-jerk response to troubled times is unfair and even outdated, but it still seems to go on.

Basically, market reactions can become self-fulfilling. If enough people believe something is going to happen, then it will.

As always, there’s plenty of data coming out.

We note UK inflation came in higher than expected this week and futures markets indicate there is around a 50% chance of another rate hike before the end of 2023.

That should give the Pound some support when the war drums quieten down.

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Current rates:

Wednesday 19th October 2023 at 10:00

£1.00 GBP = 1.1486 EURO

£1.00 GBP = 1.2105 USD

£1.00 GBP = 1.9197 AUD

£1.00 GBP = 2.0789 NZD

£1.00 GBP = 1.6624 CAD

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