- Ken Winn, operations manager
The Pound has been the top performer over the last 250 trading days, with the corresponding index rocketing 10.22%, the most from other major currencies. The Cable has been on a rise since July 2013 when the economy avoided falling into a triple-dip recession and Mark Carney took over the Bank of England. In contrast to the Kiwi, nobody is saying the strength of the currency is not supported by macroeconomic data. Moreover, the U.K. is now the fastest growing among other G7 economies. However, is the Pound really overvalued or the strength is justified?
According to the International Monetary Fund, the currency is overvalued by 5-10%. However, the Chancellor George Osborne, who was criticised by the IMF for "playing with fire", will not agree to this statement. One of the possible ways of assessing the strength of the currency is the Economist's Big Mac Index. According to the index, a Big Mac in Britain costs 2.89 pounds, compared to 2.81 and 2.91 in the U.S. and the Eurozone, respectively. The figures mean that the Sterling is 2.6% overvalued versus the Buck and by only 0.6% against the single currency. According to that, the appropriate levels of GBP/USD and EUR/GBP are 1.66 and 1.27, respectively. Keeping this in mind, what is the better barometer to measure the strength of a currency– the IMF or the more digestible Burgernomics?
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