With the IMF forecasting growth of 2.9% for the UK economy it increases the chances of an appreciation of an already strong pound. As the articles below highlight a strengthening of a currency can occur for several reasons.
- Strong macroeconomic management can lead to increased confidence and therefore more FDI which in turn increases demand for the currency. With the highest forecasted growth, out of the G7 economies, the UK’s seems to be the one offering the highest return.
- Higher interest rates, relative to other countries, means higher returns on deposits. Although UK interest rates have been at 0.5% for several years, falling unemployment and higher than anticipated growth will ultimately lead to an increase in the interest rate. This is will encourage the demand for the pound to increase and therefore and increase in the value of the pound.
- Include into the mix the pessimism surrounding the emerging markets and the above becomes exaggerated.
These articles are great for developing your chains of analysis with diagrams and evaluative points.