By George Prior
Dollar weakness and fears of a pound plunge in a hard Brexit scenario are prompting a growing number of Britons to buy dollars, reveals the CEO of one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green, chief executive and founder of deVere Group, which operates in 100 countries globally, follow the Dollar Index, which tracks the greenback against a basket of six other currencies, falling 0.5% on Monday, trading at levels not seen since May 2018.
The downside moves ahead of the Federal Reserve’s policy meeting later this week.
Mr Green notes: “A sharp dollar sell-off on Monday is being seen by Brits who think internationally as an opportunity to buy dollars as they are fearing a sharp plunge in the pound in the event of a no-deal Brexit – which is looking increasingly inevitable.
“The dollar is being weighed down by concerns over the strength of the U.S. economic recovery, the presidential election which creates uncertainty, plus the mounting tensions between Washington and Beijing.
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“Whilst the ‘greenback’ – a robust safe-haven asset in times of turbulence – is down, quite sensibly Brits are moving in to buy it as a considerable drop in sterling can be expected if the UK crashes out of the EU in December without a deal.”
He continues: “A low pound will help to slash Britons’ purchasing power and lead to a drop in UK living standards. Weaker sterling means imports are more expensive, with rising costs being passed on to consumers.”
The drop in sterling is good for UK exports some insist, however around half of the country’s exports rely on imported components. “These will become more expensive as the pound falls in value,” noted Mr Green.
“In addition, a weaker pound is, of course, bad news for British expats, amongst others, who receive income or pensions in sterling and as Brits looking to travel overseas,” he added.
The dollar index edged slightly higher on Tuesday after slumping to a two-year low, but all eyes are now on the outlook from the Fed which may outline a possible move in policy stance.
The deVere CEO concludes: “The dollar is heading towards its worst month in nearly a decade, losing 3.9% in July.
“Against the current backdrop of a continuing coronavirus spread in the U.S. putting at risk the country’s economic recovery, plus the massive EU fiscal deal, it is likely that the dollar will remain under considerable pressure for some time.
“Therefore, Brits worried about the fallout of Brexit will increasingly move to take the opportunity to buy dollars.”
About:
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.