The British pound continues to face significant challenges, with the currency seeing significant volatility in recent years. This is likely to continue for some time.
The pandemic was especially hard on the UK economy, which has weighed heavily on the pound. In March 2020, the pound sank to its lowest level against the US dollar in more than 30 years as the pandemic forced the UK into lockdown.
Two years later, the sterling is still going through a tough time. In fact, things look worse for the currency. In May 2022, the pound fell to around $1.1443, well below its pre-pandemic level. This is the first time in 37 years that UK importers are getting so little for their pound.
So, what does the future hold for the pound sterling? Is it time to buy the currency, or is a further decline on the cards?
To understand where the pound might be headed, it’s worth looking at its recent history. For most of the past decade, the sterling has been in a period of decline.
Before the pandemic struck, the key drivers were the UK’s decision to leave the European Union and concerns about the country’s economic prospects. These factors weighed heavily on the pound, causing it to fall by around 4.5 percent since 2016.
The pandemic then exacerbated the situation, as the UK was one of the worst-hit countries in Europe. This led to further concerns about the country’s economic prospects, and the pound fell to its lowest level against the US dollar since 1985.
The Current Situation
The UK is now recovering from the pandemic, but the outlook for the economy is still uncertain. The country’s vaccination program is progressing well, and the government has set out a roadmap for easing lockdown restrictions.
However, there are still risks that the recovery could be derailed by a resurgence of the virus or further lockdown measures. There is still considerable uncertainty about the pound’s future prospects.
What Does the Future Hold?
Looking ahead, the key question is how the UK economy will perform in the coming months and years. The pound is likely to recover if the country can avoid a double-dip recession and return to strong growth.
However, if the recovery falters or the UK economy underperforms relative to other countries, then the pound could fall further. This is especially true if interest rates stay low, making it less attractive for investors to hold sterling.
Make the Right Moves
Overall, the outlook for the pound is uncertain. The currency has fallen sharply in recent years and remains well below its pre-pandemic level. Thus, there is a risk that it could fall further in the coming months and years.
However, the UK economy is starting to recover from the pandemic, and if this continues, the pound could recover. Therefore, it could be worth buying sterling at its current level.
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Alpesh Patel OBE