David Gracey

David Gracey

David Gracey | Head of Foreign Exchange and Fixed Income Trading

Trust and Truss

• It’s all happening in currency markets, and it’s not great news.

• The USD is running rampant, gathering victims on its relentless march onward and upward.

• The biggest of which surprisingly is not the Rand. 

• The Great British Pound is no longer so great, as the new UK Prime Ministers economic policy is drawing negative attention. In an attempt to alleviate the UK’s sizeable inflation problem the new government has responded by cutting taxes and adding subsidies, which means that the budget deficit climbs alarmingly from an already elevated level. 

• I have said it before and ill reiterate here – Government debt around the world is a major problem, and as the world emerges from ultra-low rates (in many cases negative rates) the cost of servicing this debt rises substantially. It’s a problem that has been ignored for far too long and now the chickens have emerged and are looking for a place to lay a few eggs.

• For the Pound this is very bad news and that currency is losing ground swiftly. Parity to the USD is something that was almost unthinkable just a few short years ago.

• But the Poms are not the only victim of the latest round of currency movements.

• The Turks cut rates again last week and that little economic experiment continues to wreak havoc on the Turkish Lira

• The Rand finds itself above 18 to the USD for the first time since covid 101. 

• The Euro is well below parity to the USD.

• And so on and so forth.

• There are only 2 winners recently – the USD and perversely the Russian Ruble. 

• There is some good news on the horizon …..OIL has fallen rather steeply over the last month, which should alleviate some inflationary pressure globally.

• But that’s the only good news in a rather gloomy picture.

• The Rands performance against the pound tells us more about the UK than it does about South Africa ….the fact that the Rand finds itself stronger than 20 against the Pound tells us how poor sentiment is toward the UK. Remember Nenegate ? When the Rand was at 22-23-24 against the Islands currency. How the mighty have fallen.

• Economic experiments rarely end well – and it seems to me that Truss and her buddies are busy with an project that the market doesn’t trust. 

• Of course it all goes back to the Brexit referendum – all the problems started there. 

• 4 prime ministers later and a currency that has lost a fifth of its value  are the result.

• Back home we continue to shed load as we move ever closer to the ANC elective conference.

• The next few months will be very interesting.

• Good luck.