Will the pound fall again?

Five factors affect the performance of the pound in 2022.

Analysts believe that there are many factors affecting the value of the pound in 2022, including the relative speed of British economic growth and the expectation of future interest rates. Since Britain withdrew from the EU referendum in 20 16, the influence of politics on the pound has been hard to ignore. Generally speaking, there are five factors that will affect the trend of the pound:

Britain's economic performance. When the British economy is strong, the pound usually goes up. If the British economic recovery continues until 2022, then the pound may go higher. On the other hand, if we see that Britain's economic growth begins to stagnate, then the pound may weaken.

The data shows that the final value of quarterly GDP rate in the third quarter of 2002 1. 1% in Britain is lower than the initial value, with an annual rate of 6.8%. In the fourth quarter, Britain's economic growth continued to slow down, because the number of COVID-19 cases caused by Omicron increased, which damaged the hotel and leisure industries in Britain and dealt a heavy blow to retailers. The demand of many customer-oriented enterprises has declined, and the British economy has seriously lost its momentum.

At the same time, the rising price pressure in Britain has also brought risks, and the trade and immigration barriers after Britain's withdrawal from the EU have aggravated the inflation problem. The IMF said that the Bank of England and the Ministry of Finance should join hands to curb inflation, and the rapid rise of inflationary pressure poses a threat to Britain's long-term economic growth prospects.

Epidemic situation. Analysts of the investment institution Newsquawk believe that the spread of the epidemic caused by Omicron mutant may last until 2022, which is another key factor affecting the prospect of the pound. "This largely depends on the changes in the outlook of the epidemic, and Omicron has added a lot of uncertainty to the outlook."

Economists say that the Omicron variant may have an impact on the British economy in two ways: first, if people reduce their social activities for fear of infection, a large number of people will be asked to be isolated, and they will not be able to consume or work; Second, the British government may impose stricter restrictions.

Follow-up issues of Britain's withdrawal from the European Union. Although Britain has officially left the European Union, the problem of Britain's "leaving the EU" continues, such as the border issue between Northern Ireland. When the tension between Britain and the EU escalates, the pound usually falls. When the relationship improves, the pound usually goes up.

Bank of England interest rate changes. Although the spread of Omicron varieties made the market guess that the Bank of England would stay put, because the job market did not send a pessimistic signal, in the interest rate decision in mid-February, the Bank of England chose to raise interest rates and took action to resist the sharp rise in inflation.

Performance of other currencies. The dollar has a great influence on the pound. Generally speaking, when the dollar is strong, the pound is relatively weak, and vice versa.

In addition, if the euro rises against the dollar, it will usually boost the performance of the pound against the dollar, so the pound also tends to roughly track the euro.

Looking forward to 2022, many investors are preparing for the continued appreciation of the US dollar. Most institutions such as Morgan Stanley expect the dollar to strengthen further in 2022, but it should be noted that institutional strategists also generally expect that the appreciation rate of the dollar may slow down.