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As the Pound surges on renewed confidence, is the glass half empty or half full?

 
Infinox Contributor
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As the Pound surges, is the glass half empty or half full? (Source: Getty)

Wednesday saw sterling stage a surge against the Dollar that was less of a bull run than an all out charge.

The Pound began the day at the psychologically important $1.40 mark and then proceeded to smash past $1.42, easily its highest level since the 2016 Brexit referendum.

True, the UK posted some strong jobs figures, but the Pound’s rally was fuelled more by sentiment rather than any specific dataset.

Sentiment lies at the heart of the Brexit effect on the market. While economists are still piecing together the direct impact of Britain’s decision to leave the EU, the uncertainty that surrounds the Brexit process tends to set the tempo as much as the data.

As a result it’s sentiment - and the ongoing tussle between optimism and pessimism - that can be decisive. Wednesday’s sterling spike was a classic example of the optimists calling the shots.

Confidence in the UK economy is improving. Even outspoken critics of Brexit have conceded that Britain’s economic performance has remained much more robust than feared.

Nevertheless, much of sterling’s strength is down to Dollar weakness. While the Pound rose versus the Euro on Wednesday, it was by nowhere near as much as it did against the Greenback, and sterling is still a long way off where it was versus the Euro this time last year.

Added to this, the Pound’s purple patch could be called into question on Friday, with the publication of the first estimate of UK GDP for the final quarter of 2017. Forecasts suggest it will be around 0.4 per cent in the quarter and a meek 1.5 per cent for the year as a whole.

Most pessimists seldom think of themselves as pessimists. They generally prefer to see themselves as realists and assume optimists don’t have a proper grip on reality. For their part, optimists tend to think of pessimists as merchants of doom and gloom.

So yes, there is returning confidence in the UK economy, and that is no bad thing. But no, we shouldn't get carried away. And it’s not just in Britain where confidence is being held in check.

Axel Weber, the chairman of investment bank UBS told a World Economic Forum (WEF) audience in Davos this week things are buoyant - too buoyant.

It’s possible he finds it hard to shake off the spectre of the financial crisis. Either way, his comments show there is far from universal trust in the current global economic boom.

But for once, let’s hope Mr Webber and those like him are wrong. Most of us - be we an optimist or a pessimist - could do with a pleasant surprise.

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