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Sterling continued its bull run against the dollar this morning, touching $1.43 in the early hours and coming within striking distance of its pre-referendum level. For UK companies needing to buy dollars (or to hedge future USD purchases), this is the best opportunity that they have had for more than 18 months.
For the 30 years running up to June 2016, $1.40 was the ‘big number’ for the GBPUSD exchange rate. Indeed, the only other time in history that it dropped below $1.40 for more than a couple of weeks was in 1984-85, in response to the immense dollar strength that resulted from President Reagan’s supply side economics and the US boom that followed. With that psychological barrier now cleared, it is tempting to think that sterling has gone ‘back to normal’, and that those nasty days of having to consider parity with the dollar as a realistic possibility are now over.
Regrettably, the JCRA crystal ball is currently too cloudy for us to say with certainty whether this is a temporary high or the start of a long-term trend. Then again, the risk manager who can confidently make that call would probably be best advised to make their millions on the currency markets and enjoy an early retirement. What we can definitely say, however, is that GBPUSD is finally back at a level where corporate treasuries can put on hedges at rates reasonably close to those envisaged by pre-referendum budgets. Regardless of where it goes in the future, that is an opportunity not to be missed.
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