Sterling’s wild swings in Planet Forex literally shaped my path in life after high school. Magret Thatcher’s monetarist revolution and North Sea oil bonanza had taken cable to 2.40 while the Pakistan military’s judicial murder of Prime Minister Bhutto on April 4th, 1979 meant that we were expelled from the Commonwealth. So I was easily able to persuade my parents that Matt should not follow my Dad and grandfather to London for an education in the sceptred isle but head out to the states with four school cronies to Arizona State (ASU), voted as America’s top party school by the glossy magazine founded by Hugh Hefner.
Since the human brain extrapolates the recent past, I saw no reason why my Dad should pay triple the cost of my ASU sojourn in cold/drizzly London with the truly awful dorms of the LSE. Since Dad had endured the cold showers and stiff upper lip of the Brit ruling classes a generation earlier, he enthusiastically agreed that I should go to the ASU campus in Tempe, Arizona, then and now known as Sin City, home of the Sun Devils. So I clinched the argument after I predicted that sterling was headed to 12 UAE dirhams based upon my self serving gut instinct. Little did I know that destiny had handcuffed me to the mood swings/temper tantrums of sterling for life as I was trading currency futures on the Chicago Merc’s IMM even while a student after I transferred to Wharton in West Philly.
I was fascinated by sterling for two reasons. One, it always punched about its weight due to its role as the world’s reserve currency in the heyday of the British Empire on which the sun never set but now has sadly gone into eclipse, Mrs. Thatcher’s revolution in UK economics, the offshore oil gushers off the coast of Aberdeen, the City of London’s role as the epicenter of Eurobond market/asset securitization mega trend of the late 1980’s. Black Wednesday, 15th September, 1992, the day sterling crashed out of the ERM and George Soros made a billion dollar killing with the help of his London trader Scott Bessent is still vivid in my mind after all these years.
So I am pleased as punch to have convinced several close friends in Dubai to accumulate sterling in the 1.22-1.25 cable range as one of my anti-dollar proxies. The neural networks in my cortex coupled with a spectrum of relative value, positioning, options skew and macro metrics convinced me to be a buyer on sterling against the greenback at every dip, even at 1.34.
I used to love the young Queen Elizabeth’s profile on sterling bank notes whenever I visited London. Can my Brit friends tell me if we will now see Queen Camilla Shand’s visage on the quid? Admittedly, my best sterling strategy trades have all been on the short side. We shorted GBP at 2.10 and covered it at 1.64 in late 2007 – summer 2008. I had literally gone to the Bavarian village of Berchtesgaden to avoid taking a punt on a binary geopolitical event scheduled for June 23, 2016. Yet the moment I heard the Brexit news I knew it was time to short the hell out of the sterling. My third big short was a no-brainer after Liz Truss Mini-Budget triggered a neutron bomb in the gilts market and cable plunged from 1.25 to 1.05 in September 2022. The month HM the Queen died at the Balmoral.
Sterling will be a fave safe haven against literal Trump mania on trade policy. My preferred poison is inflation linked gilts that enable me to pocket 2.5% real rates and are so much cheaper than inflated German Bunds. London and Brussels will converge to a modus vivendi while Sir Keir has embraced Tony Blair’s art of poodle-nomics. One state dinner for Trump at Buck House, a weekend in Windsor and a few introductions to classy blond duchesses will ensure that the kingdom by the silver sea has nothing to fear from the Orange Man’s volcanic tariff tantrums. In fact, I recommend that the ancient town of St. Andrew’s, where golf was born, where William/Kate met, be renamed Trump-a-Lago in the Big Guy’s honour as he too is destined for MAGA sainthood. This is good for zero tariff for UK Plc and thus 10 more full points on my cable long. Rule Britannia, you no longer rule the waves, but you definitely rule the airwaves.
The UK’s services economy is insulated from Trump’s tariff fury. The Labour Party has a 400+ MP majority in Westminster. Rachel Reeves’ Budget was definitely fiscal tough love. The Old Lady’s rate cuts will boost the UK’s growth rate relative to the EU. Sterling is thus also a buy against the Euro for a 82 pence target. Hip hip hurrah, jolly boating weather duckies!
Also published on Medium.
