ALEX BRUMMER: Trump’s gift for sterling

As travel to the US is virtually non-existent at present, the recent surge of the pound against the dollar barely has been noticed. 

Slowly but surely, at $1.34 in latest trading, it is creeping back to levels not seen since before the Brexit referendum.

The dollar has a history of weakening ahead of US presidential elections because of uncertainty.

US President Donald Trump speaks to officials during a roundtable discussion on community safety yesterday. The dollar has a history of weakening ahead of US presidential elections

US President Donald Trump speaks to officials during a roundtable discussion on community safety yesterday. The dollar has a history of weakening ahead of US presidential elections

US President Donald Trump speaks to officials during a roundtable discussion on community safety yesterday. The dollar has a history of weakening ahead of US presidential elections

Political risk looks high for the dollar at present as a result of racial divisions exposed by Black Lives Matter, the pandemic and the Federal Reserve’s new policy of average-inflation targeting. This is interpreted as giving the green light to low rates as far as the eye can see.

The pound strengthened in the run-up and aftermath of the 2016 presidential election, which brought Donald Trump to the White House. 

The pattern shows signs of repeating itself as we move towards Tuesday, November 3. The prospect of low interest rates for a lengthy period also means that fund managers are looking to Asia in search of better returns.

The sterling-dollar exchange rate is hugely important to the UK. The US is Britain’s biggest single trading partner and many of the UK’s largest firms including big pharma, the spirits giant Diageo and Unilever have large exposures to America. The exchange rate impacts on their sterling income. 

So what is good for the sterling is not good for the FTSE 100 which is powered largely by global giants with dollar earnings.

The other factor weighing on the pound is Brexit. The exchange rate tumbled from a peak of $1.5018 just after the referendum on June 23 2016 to $1.1404 in March this year as the country went into lockdown and prospects of a Brexit deal retreated.

Predicting a path for the pound, with an EU trade deal unsettled, is tricky. Nevertheless, the prospect of a stalemate or disputed American election outcome would definitely tip the scales in the pound’s favour. 

Sterling’s value also could be underpinned by a robust bounce back from the disastrous 20.4 per cent decline in output in the second quarter. Manufacturing is on the right path. 

Help for the housing market in the shape of the stamp duty holiday for homes selling for under £500,000 is boosting sales and mortgage approvals.

The pound is still seen by many as a source of national pride. There were fears earlier this year that it could be heading to dollar parity. That has been avoided. The revival is something to be cheerful about.

Cruise control

Comeback kids are all the rage. Julian Dunkerton has returned to Superdry, the door has been reopened for Ray Kelvin at Ted Baker and Sir Roger De Haan is going one better by recycling as much as £100million of cash into silver plated travel and insurance outfit Saga.

Both Saga and its erstwhile sidekick the AA are short of cash and in play amid Covid-19. 

The private equity effort to turn Saga-AA into an insurance and financial services champion proved a dismal failure and the return of both companies to the publicly quoted markets has been little short of a disaster.

Anyone who thinks that private equity ownership is a good option need only look at the build-up of a £600million debt pile at Saga to understand it’s not. Chief-executive Euan Sutherland seems to be doing the right things. 

Superfluous enterprises have been sold off and the intention is to focus on travel, cruise and insurance.

One of the biggest tasks is getting cruise ships up and running by Christmas. Bookings for 2021 are strong and the latest two vessels have safer cabin exclusive air conditioning. 

That should help as should the focus of the insurance arm on providing pandemic cover. Investors seem impressed marking the shares up 32 per cent.

Far better De Haan than another period in grasping and dismal private equity ownership.

Erasing history

The wealth of the Square Mile was built on empire. 

The City of London Corporation has decided the time has come to confront that past with a three month review on what to do about statues with historic links to slavery and racism.

Among the monuments in danger is a statue of William Beckford in the Guildhall, a former Lord Mayor reputed to be the largest slave owner of his time

Who knows what horrors lurks behind Sir John Soane’s curtain wall at the Bank of England.

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