The pound has risen slightly from the lowest point that it reached after June’s referendum vote, but at $1.32, it remains near a multi-decade low against the dollar. But don’t write off sterling, says Stephen Jen, the well-known currency strategist who runs hedge fund SLJ Macro Partners.
“The UK is going to perform very well outside the European Union,” says Jen, who reckons that the pound will eventually recover to the $1.50 level it almost touched just before the Brexit vote. In particular, he dismisses the notion that banks and other institutions will abandon the City for other European capitals. “How can Paris become a financial centre if you can’t fire anyone there?”
Of far more concern to investors than Brexit is the behaviour of central banks in general, says Jen. They are “so afraid of people getting drenched in the rain that they have taken extraordinary measures to fight nature, to prevent rain and to prevent winters”. But their actions are storing up trouble for the future: “assets are misallocated, excessive risks are being taken, pension funds and insurance companies are under extreme stress and banks are challenged… there will be long-term consequences”.
Another side effect is that markets have become far too focused on the rhetoric of central-bank officials (and the Federal Reserve in particular), scrutinising every speech and comment for hints on future policy. He admits that he too has been guilty of this in the past, but now realises that “Fed watching, in retrospect, has been the single biggest waste of my time in the past two years… we have all been taken for a ride by the Fed”.