The pound has rallied from a two-year low against the dollar. This is despite the current outlook of the UK economy, which is reported to be worsening amid a downturn.
The several months of consistent low price levels of the pound have been overturned by two weeks of a substantial price rise. This is mainly attributed to the high demand for the dollar as a haven currency rather than economic improvement for the UK.
Jordan Rochester, Nomura Plc strategist, does not expect the uptrend of the pound-dollar to be sustained for long. He cited several factors that are set to weaken the price, including the United Kingdom’s weak position compared to China and a slowing Europe.
A recent survey of the union of companies in the UK suggests dipping demand and dragging profits. And inflation, which has attained a four-decade high, is likely to keep rising. Any attempt to further tax the energy companies by a new government will likely dampen the enthusiasm of the market’s investors. Indeed, BP Oil has already released a statement that they are reconsidering their spending plans.
Weak UK Economy To Affect the Pound Rise
A contrast between the Bank of England, which has a gloomy outlook after consistent interest rate increments, and the European Central Bank, which is set to commence hiking, could also lead to a fall of the pound against the euro. Indeed, there is advice to invest in the euro against the pound as there is a forecast of 88 pence by the end of June.
However, the good news for the UK economy is that they have a strong labour force. Also, the government’s recent £15 billion continuous investment will help cushion the blow from the inflated energy costs. But this can only do so much in the long run.
The pound is expected to nosedive pretty soon from its current level.
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