Incisive market commentary from David Morrison

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
+ Show blog menu



Expand 2017 <span class='blogcount'>(348)</span>2017 (348)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Expand December <span class='blogcount'>(23)</span>December (23)
Expand November <span class='blogcount'>(41)</span>November (41)
Collapse October <span class='blogcount'>(37)</span>October (37)
Central banks and US payrolls in focus - Weekly Bulletin
31 Oct 2016
Revised Trading Hours - UK British Summer Time (BST) ends, 30th October 2016
28 Oct 2016
US GDP in focus - AM Bulletin
28 Oct 2016
US stock indices still range-bound
27 Oct 2016
Equities drift on mixed earnings
27 Oct 2016
Earnings season, oil and the US dollar - Video Update
26 Oct 2016
Apple disappoints - AM Bulletin
26 Oct 2016
Silver range-bound - PM Bulletin
25 Oct 2016
Equities up on deals and earnings - AM Bulletin
25 Oct 2016
Spread betting charges – overnight financing - Trading Guide
24 Oct 2016
USD rally continues - Weekly Bulletin
24 Oct 2016
Deutsche Bank trades at pre-DOJ fine levels : AM Bulletin
21 Oct 2016
ECB Decision in less than 400 words - PM Bulletin
20 Oct 2016
Oil’s move to a 15-month high supports global markets - AM Bulletin
20 Oct 2016
Intel buck earnings trend as the Fed takes centre stage again - PM Bulletin
19 Oct 2016
WTI eyes resistance around June highs - PM Bulletin
18 Oct 2016
US/UK inflation data in focus - AM Bulletin
18 Oct 2016
How to know what to spread bet on : Trading Guides
17 Oct 2016
Dollar up on December rate hike speculation - Weekly Bulletin
16 Oct 2016
Oil sparks recovery on Wall Street - AM Bulletin
14 Oct 2016
FOMC minutes - hawkish or dovish? - PM Bulletin
13 Oct 2016
Weak Chinese trade number hits miners - AM Bulletin
13 Oct 2016
US indices range-bound ahead of election - Video Update
12 Oct 2016
FOMC minutes in focus - AM Bulletin
12 Oct 2016
Sterling at fresh multi-year lows : PM Bulletin
11 Oct 2016
Brent crude hits 12-month high - AM Buleltin
11 Oct 2016
How Spread Betting Works : Trading Guides
10 Oct 2016
Another disappointing US payroll report - Weekly Bulletin
09 Oct 2016
Sterling “flash crash” and US Non-Farm Payrolls - AM Bulletin
07 Oct 2016
Non-Farm Payroll look-ahead - PM Bulletin
06 Oct 2016
AM Bulletin: Equities up on data releases and oil
06 Oct 2016
Video Update: OPEC’s production cut promise poses some questions
05 Oct 2016
AM Bulletin: Precious metals slump on USD rally
05 Oct 2016
PM Bulletin: Sterling lurches lower
04 Oct 2016
AM Bulletin: Firmer start for global equities
04 Oct 2016
Trading Guide: How to use Stop Losses in spread betting
03 Oct 2016
Weekly Bulletin: Important week for data releases
03 Oct 2016
Expand September <span class='blogcount'>(41)</span>September (41)
Expand August <span class='blogcount'>(52)</span>August (52)
Expand July <span class='blogcount'>(38)</span>July (38)
Expand June <span class='blogcount'>(42)</span>June (42)
Expand May <span class='blogcount'>(42)</span>May (42)
Expand April <span class='blogcount'>(45)</span>April (45)
Expand March <span class='blogcount'>(41)</span>March (41)
Expand February <span class='blogcount'>(42)</span>February (42)
Expand January <span class='blogcount'>(39)</span>January (39)


Sterling has continued its sell-off this week. As things stand the GBPUSD is on course to make a fresh 31-year low. Back in February 1985 the GBPUSD briefly traded below 1.0500. As can be seen from the chart below (courtesy of that was a precipitous fall from where it stood at the beginning of 1981 – just above 2.4000. As sterling hit its low-point the miners’ strike was drawing to an end. However, the decline in cable back then was as much about the turnaround in the US economy as a downturn in the UK’s. Paul Volker had assumed chairmanship of the US Federal Reserve in the summer of 1979 with a mission to bring inflation under control. And he is widely credited with this success, taking inflation from 14.8% in March 1980 to 3% in 1983. However, he wasn’t universally popular as he took the Fed Funds rate up from around 11% in 1979 to 20% by the summer of 1981.

How different things are today.

PM Bulletin

Sterling continues to come under pressure as investors fret about uncertainty ahead of negotiations to leave the European Union. This was brought into sharp relief at the Tory Party conference when Prime Minister Theresa May fired the starting pistol for the withdrawal process. Investors are concerned that the government's stance points to a "hard Brexit.” This could see the UK take back control over migration but as a consequence lose access to the single market. There is a fear that this will lead to an exodus of banks and other financial institutions from the UK, and London in particular. This would lead to falling tax receipts and a further widening of the budget deficit. However, none of this should come as a surprise to anyone following the debate over the UK leaving the EU. The Brexit result is all about sovereignty. What is still unclear is if the UK can regain sovereignty, extract itself from the customs union and negotiate a favourable trade deal. This maybe uncertain, yet nothing has happened to suggest it can’t happen.

So there are other things weighing on the currency. As in the early eighties dollar strength is partly to blame. Bear in mind the US Federal Reserve is threatening to hike rates before the year-end while the Bank of England said it could loosen monetary policy further. In addition, Chancellor Philip Hammond looks set to use Brexit as an excuse to boost infrastructure spending, abandoning his predecessor George Osborne’s plan to eliminiate the country’s persistent budget deficit by 2020.

So for the time being sterling is out of favour with investors. But bear in mind that the latest World Price Index (WPI) data for October shows that at 1.2700 (and we’re currently even lower at around 1.2250) sterling is 13% undervalued against the dollar in purchasing power parity (PPP) terms. Now currencies can stay cheap (or get cheaper) relative to others for long periods at a time. But at some stage investors are going to wonder if the market has got out of whack. It may not be for a while, but sterling has yet to go down for ever.

David: Bear in mind the US Federal Reserve is threatening to hike rates before the year-end while the Bank of England said it could loosen monetary policy further.


Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.


Posted by David Morrison

Category: PM Bulletin

Add a comment Add comment            


© 2018 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.