Date
18 October 2017
Strong foreign investment inflow and improving political outlook in Britain could help the pound sterling. Photo: Bloomberg
Strong foreign investment inflow and improving political outlook in Britain could help the pound sterling. Photo: Bloomberg

Why the pound sterling is set to become stronger

After bouncing back from 1.20 against the greenback, pound sterling has cleared a major hurdle at around 1.27 and is poised to break 1.30 soon.

Much of the chatter regarding the Brexit vote has been centered on the negative impact that withdrawal from the European Union will bring to the UK, but what about the positive changes?

For instance, Britain is the second largest recipient of foreign direct investment, second only to the United States, according to OCED’s latest report.

The FDI level is the highest since the 2008 financial crisis. Interestingly, the biggest source of FDI is from EU countries.

It’s also noteworthy that a number of mega deals together account for a significant portion of FDI into UK.

These include Softbank’s acquisition of ARM Holdings, Inbev’s purchase of SABMiller, and Shell’s takeover of BG Group.

The foreign corporates are clearly confident about the UK’s future, or else they won’t vote with hard cash.

Meanwhile, the political situation could improve markedly if Prime Minister Theresa May can lead Conservatives toward a landslide win in the upcoming election, a result that seems quite possible.

I believe further gains of the pound sterling could be in store when the market starts to shift the focus to these positive developments.

The full article appeared in the Hong Kong Economic Journal in Chinese on April 29

Translation by Raymond Tsoi

[Chinese version 中文版]

– Contact us at [email protected]

RC

Columnist at the Hong Kong Economic Journal

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