{"id":96570,"date":"2016-10-09T19:43:32","date_gmt":"2016-10-09T23:43:32","guid":{"rendered":"http:\/\/countingpips.com\/?p=96570"},"modified":"2016-10-09T19:43:32","modified_gmt":"2016-10-09T23:43:32","slug":"the-pound-is-pounded-but-investors-urged-to-avoid-knee-jerk-reactions","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/10\/the-pound-is-pounded-but-investors-urged-to-avoid-knee-jerk-reactions\/","title":{"rendered":"The pound is pounded but investors urged to avoid knee-jerk reactions"},"content":{"rendered":"
October 9, 2016<\/div>
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By George Prior<\/em><\/strong><\/p>\n

The pound might have been taking a pounding in recent days, but investors should avoid knee-jerk responses, warns a leading analyst at one of the world\u2019s largest independent financial advisory organizations.<\/p>\n

Tom Elliott, International Investment Strategist at deVere Group, is speaking out following sterling\u2019s nosedive of 6 per cent in two minutes<\/span><\/span> in an overnight \u2018flash crash\u2019 late last week.\u00a0\u00a0On Friday<\/span><\/span> morning, at its nadir, the pound was being traded at $1.1841, which is its lowest since 1985.<\/p>\n

Mr Elliott observes: \u201cCurrency markets are reacting to three things.<\/p>\n

\u201cFirst, the realisation that British Prime Minister, Theresa May, has opted for a risky \u2018hard\u2019 Brexit strategy.<\/p>\n

\u201cSpeeches at the Conservative Party conference last week suggested that the UK government will be willing to sacrifice membership of the single market, and possibly the E.U\u2019s free trade area, in order to \u2018take back control\u2019 of immigration and end \u2018meddling from Brussels\u2019 on a range of issues.<\/p>

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\u201cA hard Brexit carries a much greater risk of economic dislocation as investment plans are put on hold by UK businesses, and by foreign ones considering investment in the UK, as they wait to see what tariffs and conditions will apply to UK\/EU trade once the Brexit negotiations are completed. Consumer confidence may weaken, with purchases of big-ticket items put off if consumers fear a slowing economy and a rise in unemployment. A weaker economy usually is bad news for a currency.<\/p>\n

He continues: \u201cSecond, the UK runs the largest current account deficit in the developed world.<\/p>\n

\u201cThe UK current account deficit (which is the total of these) is -5.4% of GDP (\u00a3162bn). It is-2.6% for the U.S, and +3.2% for the eurozone. This means the UK relies on foreigners to buy their debt, equity, buildings, factories and so on to the tune of \u00a3162bn each year in order for the books to balance. There is a real risk that with slower growth and Brexit uncertainty increased, these inflows shrink. Then sterling must fall in order to bring the current account deficit and matching inflows into balance.\u201d<\/p>\n

He goes on to say: \u201cAnd third, there is the possibility of higher U.S. interest rates and possibly lower ones in Britain.<\/p>\n

\u201cInterest rate trends currently favour the dollar over other currencies, as the Federal Reserve is clearly itching to raise rates. Slower growth in the UK as a result of a hard Brexit may lead to the Bank of England cutting interest rates again, down to zero.\u00a0\u00a0\u00a0A widening interest rate differential against the dollar will lead to a weaker pound, everything else being equal.\u201d<\/p>\n

Mr Elliott concludes: \u201cWhat should investors do? For the moment: Sit still and avoid knee-jerk responses. Recent economic data from the UK has been stronger than had been expected in the wake of the 23 June<\/span><\/span> referendum. Doom and gloom forecasters may continue to be proved wrong as a hard Brexit is negotiated.\u201d<\/p>\n

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deVere Group is one of the world\u2019s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.\u00a0 It has a network of more than 70 offices across the world, over 80,000 clients and $10bn under advisement.<\/em><\/p>\n

www.devere-group.com<\/a><\/p>\n

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By George Prior The pound might have been taking a pounding in recent days, but investors should avoid knee-jerk responses, warns a leading analyst at one of the world\u2019s largest independent financial advisory organizations. Tom Elliott, International Investment Strategist at deVere Group, is speaking out following sterling\u2019s nosedive of 6 per cent in two minutes […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-96570","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/96570","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=96570"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/96570\/revisions"}],"predecessor-version":[{"id":96571,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/96570\/revisions\/96571"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=96570"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=96570"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=96570"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}