Aegon AM: Will Boris Johnson boost the Pound?

23 jul 2019

Market Commentary – Do currencies prefer blonds?…

Colin Dryburgh, co-manager, Kames Global Diversified Growth Fund:

“Given certain strong similarities between Donald Trump and Boris Johnson it has been suggested the latter could be as good for Sterling as Trump has been for the US Dollar; you could certainly be forgiven for believing the US Dollar has been strong, given Trump’s recent calls for intervention. The truth is, however, the Dollar is today only around 1% higher, on a trade-weighted basis, than when Trump was elected. The inference that Boris will boost the Pound might be similarly incorrect.

Both the UK and US economies have performed relatively well of late and both have central banks that have raised their policy interest rate; both too have yawning external deficits. Sadly, there the similarities end. Whatever your view of it, the US Government is stable and delivering coherent economic policies; a far cry from the mess in the UK which sees Boris as a manifestation rather than a cure.

The US is the World’s major economy, has the global reserve currency and is increasingly energy self-sufficient (and so able to dictate terms to everyone else); the UK is much more beholden to the generosity of strangers and has a very uncertain external outlook, especially with the EU.

Trump has a loyal and sizeable support base capable of delivering a second favourable election result where the alternative isn’t really that different. All we know for certain about Boris is that he commands the support of the ruling Conservative party, comfortably less than 1% of the population. The Ukraine now has a comedian for leader; one might ask have we got much better? And if not Boris, then Jeremy Corbyn, Leader of the Labour Party. Theresa May had her failings but for investors at least there was comfort that nothing dramatic would result; neither Boris nor Corbyn instil that sense of stability. Finally, the challenge for the Pound is that, with few things in its favour, it is not sufficiently cheap to absorb the risks on both the conclusion of Brexit  and the vagaries of domestic politics.

Boris and Trump may have similar hairstyles but Boris is likely to prove much more hair-raising!”