The GBP trading at 1.25 to the USD has been questioned at least since 2019, when Britain crashed out of the European Union — with manufacturing down and Europe entering depression, the pound looks destined for parity, the Euro to sub-parity.
The Bank of England was the first major European bank to start raising interest rates; this following a long period of stagflation that seems to hold tell-tale warnings for Europe, Britain, and the US, in what some are calling a ‘decade of terror’ to come ahead for these powers.
While the impending dominance of BRICS economies may have been exponentially more important than the BREXIT, for causing this early speculation of parity, nonetheless sophisticated investors may find it hard to argue against the pound being currently highly overvalued.
We are in a transition area. Where emerging economies like Brazil, who have enormous resources, are tightening their infrastructure to take better advantage of their advantages — and while global capital may shape the landscape more than any single nation, confidence in the old vanguards as investment centres is waning.
Tell-Tale Parity Signs
The Bank of England raised inflation rates by a quarter point before anybody else did. Bank of Canada was next, eventually the US Federal Reserve followed suit. The UK is in a tough position, not least because the pound is still greatly overvalued.
Recently, the Bank of Hungary raised interest rates by over 1.7%, when the market expectation was that it would only be a quarter point. Indeed, the Fed would arguably have raised its rates six months earlier if not for political infighting against it on Capitol Hill.
We’re dealing with a lot of meddling of economic realities for reasons of perception and optics , with projections of by Europeans US being too optimistic.
While we seem to be in a general bull market for the US dollar, the City of London has been affected by changes in underwriting of US debt.
Speaking “magic words” no longer works, here is why
Sanctions against Russia were not only effective but intensified Russia’s dominance of resources -- this now reached the point where Russia needs to find ways to handle its currency becoming too strong — these are problems that the UK wishes it had.
And the recent G7-led proposal to price-cap Russian oil globally required global-level acceptance, which was in fact declined by the major emerging economies. Among them was China, which cited the importance of sensible oil relations for its own infrastructure obligations.
The ‘Collective West’ (Europe, Britain, the US) will need to focus on its own obligations and the reality of its declining standing in the world economic stage. These two following facts should speak volumes about the true reality; the flow of supply and demand internationally:
- The Collective West’s total population only represents 770 million out of 7 billion total people worldwide; around 0.1%.
- And their GDP now only represents around 27% of the global GDP; putting them into the minority, not a dominant position.
Sanctions against Russia (already causing purchasing of Russian oil at a premium through the middleman haven that has been opened up by this banning), the lack of manufacturing power, low comparative natural resources, excessive debt, the vacuum of leadership in what some are calling a ‘land of illusions’ — leaves Britain in a diminishing position economically.
And, in one of Boris Johnson’s first sweeping criticisms by his own party — for forgoing addressing inflationary and living squeeze problems in the UK, in order to travel to Ukraine in its conflict with Russia — it seems increasingly right to say that Britain is living in a land of illusions, and that this spell will eventually break open to GBP parity with the dollar.