The pound sterling today found itself at the highest level of value against the basket of other major currencies since June 24, 2016 – the day after the fateful EU referendum that saw the United Kingdom opt for Brexit.
This morning's peak valuation saw the pound worth €1.198871 and $1.37402 respectively, though that has slightly tailed off as the US markets have kicked into action this afternoon.
The improved strength of sterling has been attributed to an upswing in confidence that the UK is handling the latest Covid-19 variant, Omicron, without any significant impact upon the British economy – something initially feared given Omicron's increased transmissibility compared to Delta or earlier variants of the coronavirus.
More importantly perhaps, the Bank of England's move in December to raise interest rates is expected to be matched with continued rate rises this year, and potentially one in the first quarter of the year in an attempt to curb inflation. This is a big confidence booster at a time when the European Central Bank (ECB) is refraining from taking action, and the US Federal Reserve is slow off the mark.
Another factor is economic growth, with the UK finally surpassing its last pre-pandemic level as of November 2021. 0.9% growth pushed the nation just over the mark according to the Office for National Statistics (ONS), though the organisation and other economists did warn that there would likely be a December and January slowdown that would pick back up again as we progressed into spring.
For gold, this means global demand is being met head on – at least in domestic terms – by the stronger currency. Today's price is around £1,330 per ounce and up approximately 0.77%, but down around 0.8% for the month. Gold enjoyed a strong second half to 2021 but the strong optimism about vaccination early in the year resulted in an overall price fall of around 1% for the precious metal.
The stronger pound might see improving demand over the course of the next week as investors look to take advantage of improved buying power and value for money, but more importantly is how well the Bank of England – and other central banks – handle inflation. Too sharp a reaction could hinder growth, too little reaction and inflation grows. The latter is safer for economists to handle, so there could be windows of opportunity in 2022 where gold is the go-to investment as a hedge against inflation while central banks are pressured to react.
