The pound surges against the US dollar

I am not going to claim the pound has risen in recent months against the dollar because of Brexit. It is up by 10% from the lows. I am sure anti Brexit commentators would have been full of how it was a result of Brexit if we had fallen against the dollar. Recent events remind us that the main forces shaping leading currencies have nothing to do with our vote. Sterling often sits somewhere between the Euro and the dollar, reflecting our substantial trade with both sides of the Atlantic, and our monetary policy which is also currently mid way between the two. We are witnessing a big move in the value of the Euro relative to the dollar.

So why is the dollar falling and the Euro rising? The Euro is strengthening because markets think the European Central Bank next year will have to tighten monetary policy and stop buying up so many bonds with created money. Meanwhile markets have revised their view of how quickly the US will move up interest rates, presently concluding no further increase is likely this year. There are spare places to fill on the Fed’s Policy Committee, where Mr Trump is likely to push for more dovish participants. Meanwhile Mr Draghi at the ECB is under German pressure to reduce the stimulus that Bank is pumping into the Euro area economy.

The Japanese authorities are still trying to keep their currency down. They plan to carry on with a large programme of money creation and have pledged to keep their ten year borrowing rate at zero, which makes it cheap for the state to spend more than it raises in taxes. The pound fell against the yen after the vote and has now risen back almost to where it was before. It is up from an October low of 126 yen to £1 to 143 yen.

So out of the big four reserve currencies used as SDRs, the dollar is the weakest and the Euro the strongest for the time being. Sterling and the yen lie in between, with sterling the recent stronger of the two. The recent move will help US and UK exporters to the EU, and hit EU exporters to the US. Mr Trump is having his way so far in the currency market, as he wanted a weaker dollar after a long period of dollar strength. Mr Draghi at the ECB has a new dilemma thanks to these changes. He does not want a stronger Euro as he is still trying to boost both inflation and output. A stronger Euro limits price rises and makes exporting more difficult.


  1. Peter VAN LEEUWEN
    September 12, 2017

    Not just that the pound is surging, Britain is now the
    second ‘most powerful country in the world’ !
    (Dail Mail, Henry Jackson Society)! 🙂

    1. Mark Watson
      September 12, 2017

      “Still” the second most powerful.

    2. lojolondon
      September 12, 2017

      Can you see at last why we do not want to be the largest contributor in a group of 27 lazy, underperforming backscratchers?

  2. Prigger
    September 12, 2017

    “I am not going to claim the pound has risen in recent months against the dollar because of Brexit.” No but if the pound had declined, our media would phrase it “…declined since Brexit” thus insinuating but not proving Brexit was the cause and without giving details to the point. As they speak like 1930s Pravda journalists they should give us an invigorating display of Cossack leg kick-dancing as they read the news instead of standing slovenly.

    1. Mitchel
      September 13, 2017

      In the 1930s,comrade Prigger,you would have been shot for showing Cossack cultural affinity.

  3. Mark B
    September 12, 2017

    Good morning.

    Ah, but the question is, does today’s pound buy the same as the pound of say 10 years ago ?

    Well thanks to QE (money printing) it seems it does not. And for that we are a little poorer.

    Short term currency fluctuation are irrelevant, it is the long-term trend that is important.

    See GBP vs USD 10 year chart – if our kind host allows :

    And remember, raw materials are purchased in USD so things have defiantly being going up. The only thing that has counterbalanced this is the fall in wages thanks to MASS immigration.

    1. Andy
      September 12, 2017

      Well it is a little known fact that the Pound Sterling had exactly the same value on the day War was declared in 1914 as it had on the day Napoleon surrendered his sword after Waterloo. That Pound today is worth a penny. This is how ‘they’ (the Political Class) have debased the Coinage.

    2. acorn
      September 12, 2017

      Don’t get carried away by short term nominal (effective) exchange rates (NEER). Remember; all the currency exchange required to enable global, physical, tangible, trade in goods and services, can be done in less than one week of foreign exchange market dealings.

      The other fifty two weeks are purely currency casino gamblers, placing bets on the equivalent of two flies walking up a window pane. Over 90% of what the City of London financial barrow boys do, should really be controlled by a Gambling Regulator not a Banking Regulator.

      The bit that matters is the REAL effective exchange rate (REER). How much can you afford to import from foreigners, with the money your goods and services fetch in those foreigners home markets.

    3. John
      September 12, 2017

      Then again anyone in the UK in a UK reasonably managed equity index fund would have seen an approximate 22% increase.

      Depends on your viewpoint.

  4. Roy Grainger
    September 12, 2017

    All those Labour supporters arguing that a fall in the value of the pound against the Euro is a bad thing should also warn against voting for Labour in the next general election because there would be a far more dramatic impact on the pound’s value if they were elected.

  5. Richard1
    September 12, 2017

    There is a theory that the euro is strong because the ECB is buying so many euro assets and we don’t have the normal inflationary pressure such money creation would generate. A major question is what happens when this stops and countries such as Italy have to finance themselves (€400bn in Italy’s case in v short order as I understand) in the markets.

    We really need a much more positive vision from the Government, especially from Philip Hammond in the budget, as to how to make the UK a more dynamic and competitive economy post-Brexit.

  6. Martin
    September 12, 2017

    Surge?? The Pound is buying a measly $1.32 today. Even after the banking crash $1.50 , ditto after Mr Cameron’s election win. Was it over $1.90 when you were a minister?

    You also appear to have great faith in the ability of the authorities to control currencies. What happened to the free market?

    1. NickC
      September 12, 2017

      Martin said: “What happened to the free market?” A national currency, such as the GBP, is the epitome of a nationalised entity, especially as it is fiat. Modern governments control their currencies closely. The only free market element is the float of the GBP against the Yen, Euro, Dollar, etc.

      UK governments for about 100 years have devalued our currency. Only 60 years ago a family could survive quite well on £10 a week. Inflation is a cynical tax on everyone. Continual government borrowing is a tax on young people. Jeremy Corbyn wants to do more of it.

  7. Prigger
    September 12, 2017

    Last night. When Mr Speaker had to shout to make himself heard in the House, he should not. Instead of five minute long sentences every day, several times per day informing Members to be brief or quiet he should have a bright on-off light affixed to his podium indicating he requires absolute quiet in order for he himself to speak. Like Pavlov dogs, MPs will soon change their behaviour. It’s cheaper too than throwing Labour a bone

  8. Bryan Harris
    September 12, 2017

    I’ve always seen printing of money as a dodgy exercise in trying to stimlate economies – but strangely, I don’t recall we needed to do this when interest rates were high… is there a political connection between low interest rates and Quantitative easing?

    Quantitative easing always seems to suggest bad management to me!

  9. Prigger
    September 12, 2017

    What annoys me about the American economy is that Hurricane Irma, with an area the size of France, can pile into Florida and Georgia and the Governors say ” Wheerrll, it’s gonna be at least three weeks before we’re up and runnin again” when one snowflake falling on our rail track brings the entire London underground to a halt and the rail unions go on strike for a month protesting the cold and wet. I’m glad the Yanks helped us in the war.

    1. 37/6
      September 12, 2017

      The vast majority of rail personnel have never been on strike – thanks to privatisation.

      The impact of snow in Britain is down to the lack of investment in snow clearing equipment – deemed too expensive for the rare number of times it snows.

      North America has many faults. Many of its people live in third world conditions.

    2. Bryan Harris
      September 12, 2017

      Yes – I was thinking something similar – they assess the damage and even while the storm is dying down they get to work to get things back to normal – You have to admire the way they are organised from that viewpoint.

  10. Newmania
    September 12, 2017

    Yes well the Euro is the thing dragging the pound up against the dollar so John is wise to keep his “It ha nothing to do with Brexit ” get -out clause operative .
    Does anyone know, by the way at what point in ,let us say an annual or bi annual contract requiring on shore capital (passported within the EEA) cannot be made . If it is annual does that mean all such agreements must cease at the begging of 2018 ie just about now .There seems to be no guidance in this point.
    What about annual contacts to supply anything do they have to stop March 2018 if they are dependent tin anyway on the single market or EEA. Again there is no guidance I am aware of.

    Reply Most contracts will be unaffected as they are private agreements within the private sector where both parties will wish to continue.

    1. Anonymous
      September 12, 2017

      We are still receiving economic refugees who were born in what is now the Eurozone, Newmania.

  11. Bert Young
    September 12, 2017

    Poor Greece . Germany’s control over EU financing and the ECB means the end of the various forms of subsidy Greece receives ; if Draghi pulls back from his support programme and follows the line he is supposed to take , it is not just Greece that will suffer ; Italy , Spain and Portugal are in the sniper’s target . If the Euro slips back in value , just imagine what would happen to Germanys’ exports !.

    If we do sit in the middle as John suggests , we can sit back and rub our hands in glee . Currency competition is not an interesting game and , if the past is anything to go by all it will do is to produce an uncertainty in the markets – a situation we can all do without . The City of London gains no matter what happens .

  12. Ed Mahony
    September 12, 2017

    Why don’t leading Brexiters just organise an informal meeting with people such as Guy Verhofstadt and jump on a plane to meet him (in his house, wherever). And just say that his vision of the EU is based, to an important degree, on ideology not pragmatism/reality.

    Surely those who argue the EU is about bringing peace + security to Europe (and a strong economy), need to realise that you don’t need to create a strong political union to achieve that. Yes, you do need to create a strong, prosperous Europe – because prosperity actually brings political and social peace + security in itself – but not a political union (which can cause disagreement / division / strife).

    The EU needs to be paired down to just being a strong economic union. (And have lots of close cultural bonds through EU grants etc to help people from different EU countries appreciate the best from other countries in the union).

    It can be done.

    1. Ed Mahony
      September 12, 2017

      And instead of having political power, the EU should have an advisory body that focuses on how the EU can work best together over things such as security, building big commercial projects together, and so on. And that is respected (and that national governments don’t want to get on the wrong side of all the time) but that is not, ultimately, legally-binding.
      I do think, however, the EU needs legal right to ensure that all trade agreements are being implemented correctly. But should have no legal power beyond this.
      In time, Europe could even have free movement of people, but only once parity of wealth has been achieved, more-a-less, across Europe – through capitalism not socialism. Might take 30 or 40 years. Nevertheless, the free movement of people is possible.

    2. Monza 71
      September 14, 2017

      It won’t work for the simple reason that Verhofstadt isn’t interested in listening to any voice other than his own.

  13. Peter
    September 12, 2017

    So yesterday’s parliamentary vote on Brexit turned out well and it has been leaked that Britain is preparing contingency plans for an exit with no deal.

    I think a rapid no deal exit would be in our interest. Barnier and the EU are looking at the negotiations from a political viewpoint. Their aim is to defend the union and prevent other contributors leaving. That is not compatible with our economic viewpoint of securing the best trading terms available with full sovereignty.

    Mischief makers lurk on the outskirts looking to derail or delay Brexit – Blair, Gina Miller etc.

    It really is in our best interest to end negotiations as quickly as possible.

  14. MichaelO'S
    September 12, 2017

    Yes the Pound is coming back, I wish it would come back more quickly though because part of my pensions make up is in pounds, some in Euros and I live in Euroland. So I have devised a scheme where I spend my Euros south of the border and then go North to spend my sterling. It works out the same anyway because at the end of the week I’m back to nearly zero in my pocket – but I do get the chance to meet my extended family more often. Cheers

  15. Denis Cooper
    September 12, 2017

    Tangential to this topic, it’s now ten years since the collapse of Northern Rock:

    “Northern Rock’s Bank of England bailout ‘should have been secret'”

    While tangential to the topic of one of yesterday’s articles, when the financial crisis had developed to the point where the UK’s state finances were coming under threat the Labour party in government did just the kind of thing that the Labour party in opposition is now loudly accusing the Tory party of planning to do during our EU withdrawal.

    On January 29th 2009 it quietly slipped through a Statutory Instrument to exempt the Bank of England’s asset purchases from normal regulatory scrutiny; and in fact this was the sole legal measure adopted to legitimise the QE programme, which has since expanded to become £431 billion plus of purchases of previously issued UK gilts.

    It’s here:

    “The Financial Services and Markets Act 2000 (Exemption) (Amendment) Order 2009”

    Laid before Parliament on the Thursday to come into force on the following Monday, ignoring the normal 21 day rule and with Parliament not sitting on the intervening days, not on the Friday nor at the weekend, and with no need for a vote because under the parent Bill it could be approved by “negative procedure”.

    I expect JR will once again say that this was OK because MPs could have objected but in fact almost all of them would have agreed with what was being done, and that may be so, but nevertheless it does not seem a very good way to proceed.

    Reply Yes, it could have been blocked by Parliament but government and Opposition was united about this response. Speed was of the essence in responding to the crisis they had needlessly created.

  16. Norman
    September 12, 2017

    Another informative overview – thank you John.

  17. NickC
    September 12, 2017

    Next year the ECB will “stop buying up so many bonds with created money”. And if that is what transpires, those (mainly southern) EZ nations whose governments survive on selling their sovereign debt to the ECB for the invented EZ QE money will be in trouble with rocketing sovereign interest rates.

  18. Denis Cooper
    September 12, 2017

    Just to revert to a previously raised albeit also off-topic point: the government, MPs and journalists and Uncle Tom Cobley and all are united in saying that the EU withdrawal Act will transfer EU law into UK law, but I still argue that this is actually incorrect because (insofar as they apply to the UK) the EU treaties and laws are already part of UK law and have been for the last 44 years – that has been the problem!

    For example Lord Justice Laws in 2002:

    “69 In my judgment … All the specific rights and obligations which EU law creates are by the ECA incorporated into our domestic law and rank supreme … ”

    What the withdrawal Act will do is:

    a) remove that existing legal basis for EU law to be part of our law, the ECA72,

    but at the same time

    b) provide a new legal basis for that, namely the withdrawal Act itself.

    1. Andy
      September 12, 2017

      I am not a Lawyer but I believe what the ECA 1972 does is ‘make available’ in Law EU Law. EU Law is not part of UK Law because it is not on the UK Statute book and has not been enacted in the usual way and received Royal Assent. However, the 1972 Act only functions because of the Treaties and once these are denounced (which is what happens when we Leave) the 1972 Act become useless because the schedule of treaties will be blank.

      1. Denis Cooper
        September 13, 2017

        Well, I refer again to Lord Denning in 1974:

        “Parliament has decreed that the Treaty is henceforward to be part of our law. It is equal in force to any statute.”

        That is to say, any statute “enacted in the usual way”.

        And if the EU treaties, regarded by the EU as its primary law:

        are part of our domestic law then surely laws springing from those treaties, regarded by the EU as its secondary and supplementary law, must also be considered as part of our domestic law?

        This may seem to be legalistic nit-picking, and in a way it is, but the problem is that the government’s flawed account of the purpose of its Bill is leading to public misunderstandings which may have political consequences.

        Why, some ask, quite reasonably, is a government which says we are leaving the EU trying to passing an Act to convert all of the EU’s rules into UK law, apparently for the first time after forty-odd years of being in the EU?

  19. ian wraggt
    September 12, 2017

    To me who was paid in US dollars for over 20 years, the £ seems to be carrying on with its cyclical movements against the $.
    We had a bench mark of about $1.5/£1 when we sent money to our UK account.
    Anything above that and we kept a $ account until the rate was more favourable.
    Over the years, I seem to remember the rate going from $2.2/£1 down to $1.07/£1.
    Nothing much changes.
    I see now we are to have dozens more offshore windmills which are supposedly competitive, to counter for when the wind doesn’t blow we are going to install dozens of OPEN CYCLE gas turbines.
    These are quick start (around 4 minutes) and can be on full load within 20 mins. The downside is, they will only be about 40% thermal efficient ( less when you take into account frequent start/stop). and they will be pumping millions of cubic metres of CO2 laden exhaust gas at about 450 degrees centigrade.
    Tell me again John how that helps global warming.
    This is what you get when you flood Parliament with PPE graduates.

  20. Ed Mahony
    September 12, 2017

    Surely, the real news is that inflation is at 2.9%. This is real economic pressure on the working classes who voted Brexit. If this continues, they’ll soon abandon Brexit, and a second referendum will be called to re-balance the economy.

    As someone said to Bill Clinton, ‘it’s about the economy, stupid’

    (Not forgetting that stats show, most people, including Brexiters, don’t have strong opinions about Europe, and even many Brexiters voted to leave because of immigration, with no real decline here either. Lastly, all the Brexiters can face now are: 1. the task of paying off our large national debt 2. investors pulling out of the UK who were using the UK as a gateway into the EU. And if we leave the EU 3. Banks in London losing some important trade in short to medium term 4. Businesses who normally trade with the EU facing big hurdles and a decline in trade in the short to medium term).

    Surely Hard Brexit can’t work? It hasn’t got the legs to get through the inevitable short to medium-term economic decline, affecting both consumers and businesses. And it hasn’t got the strong support of the majority of the country.

    Time to re-think. Either we remain in the EU and go hard for reform. Or else we go for Norway-style agreement with the EU.

    Meanwhile, we’re wasting time and money when we could be investing in our economy in general, paying off our national debt, and get on with other important areas of business that have nothing to do with Brexit. And the EU are now more emboldened, when it comes to any negotiations with the UK, by the UK’s rise in inflation to 2.9%.

    1. ian wraggt
      September 12, 2017

      Ed, by all metrics interest rates should be about 2.5% but Carney is still working for Osborne and pursuing a ZIRP policy.
      The man should be sacked as he is anti British and if interest rates were normalised the £ would be higher and inflation lower.
      As for your comment on EU reform, I would seriously advise you to get counselling as this is a non starter from the EU perspective.
      Have you seen what’s happening to Macron and his so called reforms.

      1. Ed Mahony
        September 13, 2017


        Early days about inflation, i guess, so will give you benefit of the doubt (plus i don’t know anything about ZIRP ..).

        ‘As for your comment on EU reform, I would seriously advise you to get counselling as this is a non starter from the EU perspective’

        – The whole point about the EU is that much of is it is based on fantasy not reality. Which is why we need to counsel the idealogues in the EU (without talking down to them / without insulting them which will just get their backs up). There’s no law of the land or the EU or no law of physics preventing us from doing so. Just takes imagination and will power.

        Saying that, a substantial amount of UK businesses rely on trade with the EU, enjoy full access to the single market, and are very jittery about leaving it.

        ‘Have you seen what’s happening to Macron and his so called reforms’
        – Not entirely sure it’s as relevant as you suggest.

        1. Ed Mahony
          September 13, 2017

          Lastly, my approach to the EU is entirely pragmatic (I have zero love for the EU – although i love Europe, the people, culture, etc). All I care about is that the UK gets the MAXIMUM economy prosperity, peace and security out of or not of the EU. Sovereignty, of course, is really important (and it’s part of patriotism which is really important). But not sovereignty at any cost, when, for most people, the economy is 10 times more important than sovereignty. And without the REAL will of the people, especially when it comes to their pay packages at end of month, any political movement will lack the legs to run.

  21. miami.mode
    September 12, 2017

    With your comment about German resistance to the euro stimulus, this only goes to prove how Germany profits from the lower value of their euro as opposed to the old Deutsche mark, probably at the expense of other euro countries, but surely today’s increase in the pound is because of the expectation of an increase in interest rates due to higher inflation.

  22. Tabulazero
    September 12, 2017

    Good morning,

    Inflation reached a 4-year high of 2.9% for July and accelerated on June.

    As a keen reader of you blog, I remember that on August 15th, you published a post in which you argued that the actual surge in inflation was entirely domestic driven and had nothing to do with the fall of the Pound.

    Do you stick to your view, Mr Redwood.


    PS.: A late night yesterday prevented you from releasing comments on a timely manner as you usually do or no one is indeed interested in the Pound languishing at 8 years low ?

    Reply I honoured a breakfast engagement out of London this morning and came back to speak in the Finance Bill debate, which is why I did not post much earlier today

    1. Bert Young
      September 12, 2017

      One has to admire the energy , thought and continuity of Johns’ blog . How he manages to sustain his efforts is , almost , unbelievable .

      1. Tabulazero
        September 13, 2017

        Agreed. Though I do not necessarily agree with his views, he has views and he makes a sterling effort defending them.

        I sincerely appreciate the commitment.

  23. Terry
    September 12, 2017

    I should think the recent rise in the GBP is down to the anticipated rates rise due to the September rise in CPI.
    I fear the BoE is again being sluggish in its efforts to keep Inflation down below 2.5% and will again pull back from any rate rise on Thursday.
    It is clear that they too have become addicted to the ultra low interest rates that benefit the debtors and the borrowers but punish the savers and the lenders and have been doing so for almost a decade.
    Such risky policies created the bubble that burst on Wall Street in 1929. Do Bankers not learn anything from the history of financial markets?
    It took until 1954 for the Dow to recover its 1929 level as it lost almost 90% of its value. This time around will be no different. More probably, worse.

    1. Mitchel
      September 13, 2017

      The price of gold has risen by more than $100 over the last month or so.I don’t believe it’s all down to Mr Kim

  24. The Prangwizard
    September 12, 2017

    Thank you for this explanation. It is refreshing to get an all-round look.

  25. Mick
    September 12, 2017

    Just been watching the BBC news at one and not one mention of the eu vote last night but had the vote gone the other way you can guarantee it would have been wall to wall none stop coverage on it, it’s about time this organisation was broken up or shut down eu bias or what

    1. Anonymous
      September 12, 2017

      Yes. It would have been “DISASTER for Brexit !” and Laura Kuenssberg’s sour little face on TV for 20 minutes at least.

  26. Denis Cooper
    September 12, 2017

    Briefly off-topic:

    “Brexit: 157 amendments tabled on Government’s EU (Withdrawal) Bill”

    “… many MPs have expressed doubts – particularly over the so-called Henry VIII powers that allow ministers to change legislation without full parliamentary scrutiny.”

    But when I skim through the amendments I find that few of them address that, directly or indirectly, and far more are obviously designed to obstruct Brexit.

  27. nigel seymour
    September 12, 2017

    Can someone please explain to me how Dennis Skinner came to vote with the Gov yesterday evening as 1 of the 7??

    Reply Presumably because he is a consistent Eurosceptic who wants to leave the EU

  28. Jason Wells
    September 12, 2017

    Swings and rounabouts and there is not one thing we can do about it?

  29. Simon
    September 12, 2017

    OT a bit: I hope the Tories do not luxuriate in the winning vote last night. The bill had a really terrible mauling in the house – quite rightly. Committee stage is going to be brutal.

    Reply No Mauling, just a lot of disinformation

    1. Denis Cooper
      September 12, 2017

      A succession of Labour MPs standing up and repeating the same mendacious party line does not constitute “a really terrible mauling” … I thought their behaviour was a disgrace, and actually an affront to the parliamentary sovereignty and democracy they claimed to be defending.

    2. fedupsoutherner
      September 13, 2017


      Just the usual culprits (SNP) trying to derail the government at Westminster like they always do. Why can they never work with the government to try and improve this country’s prospects? Same with Labour now with Corbyn and the unions running the show. They would break this country simply to gain power. The problem being that the young are so politically inept they believe all the fairy stories they are told.

  30. Prigger
    September 12, 2017

    It is the duty of Her Majesty’s Opposition to oppose. Does Labour need to oppose everything though? It is awful, one long howl from the Labour Party bemoaning the exercise of democracy on 23rd June 2016…every news item a picture of Corbyn his bearded mouth and ultra ruddy lips as if physically torn askew, this time gasping out that the government being “flexible” to increased pay for the public sector is “Divide and rule!”and how its not fair to the rest of humanity if they are paid more…it divides them.

  31. James Winfield
    September 12, 2017

    On a trade-weighted basis, the pound is significantly down and that is surely what matters.

    The USD has been falling quite significantly itself recently. Not that that stops you with your Brexit fake news, Mr Campbell.

  32. BertD
    September 12, 2017

    What if Corbyn is PM next time, maybe even by next year, with all of these sweeping powers to change our laws without recourse to parliament?

  33. ChrisShalford
    September 12, 2017

    This illustrates perfectly why the Bank of England should take off its anti-Brexit blinkers and make a small increase to Base Rate. It would increase the international value of Sterling and hence the cost of living would rise more slowly. Pressure on public sector pay caps would reduce. The benefits freeze would be less painful and savers would be rewarded more.

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