Good morning! 

For a few days last week, there was little else on my twitter feed other than views on the Brexit withdrawal agreement.

That's understandable. It's also rather overwhelming. And I much prefer to look at company news and think about my portfolio holdings instead of reading 600 pages of legalese.

The headlines which I really care about are those relating to the value of the pound. When Mrs. May lost another Brexit secretary on a chaotic Thursday morning last week, the pound weakened considerably against the euro.

This chart shows the strengthening of the EURGBP exchange rate (i.e. the weakening of the pound) over the past five trading days:


Let's zoom out. Monthly view:


The truth is that little has changed. Optimism that a deal would be reached led to a strengthening of the pound, but this optimism collapsed as of last week. So we are back around where we started.

The annual view doesn't provide us with much of a trend either:


So there's been basically nothing in terms of net progress for the pound. 

I attended a Jim Mellon talk during my recent trip to Manchester. Among the topics he covered was the outlook for the pound - and I completely agree with him that it is undervalued (granted, I am talking my own book here).

Jim cited the Big Mac Index as evidence for his hypothesis. A Big Mac is cheaper when bought in the UK and this simple metric suggests that GBP is cheap against CHF, USD, NOK, CAD, EUR, DKK and AUD. That's a lot of important exchange rates where the pound could be due for a little bit of strength. The percentage undervaluation that is implied against the euro is 11%.

My stance on GBP has been clear for a long time: I've repeated the mantra that investors hate uncertainty and that the pound will remain "cheap" until there is a resolution to the Brexit negotiations.

Once we have a clear and agreed Brexit outcome, I can see the pound recovering much of its devaluation against the euro. As far as the pound is concerned in the short-term, almost any deal is better than no deal and the continued uncertainty it engenders.

But there are higher goals than short-term currency strength. So…

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