Dollar

Currency predictions are very, very difficult. When I was a journalist it was pretty easy to find one economist to forecasting the pound would rise versus the dollar and another to say the polar opposite.

However, if I was a betting man, and I am, I would predict a stronger dollar than the pound on a 12-month view.

Maybe $1.50 is a bit ambitious; but I will definitely exchange some of my roll at $1.70. We stand at $1.95 today, down from a high of $2.10 late last year.

Reasons: first up the pound is overvalued – this is a consensus view. The Economist magazine created the Big Mac index, which measures the price of McDonald's famous burger in various countries. A bizarre concept but it is a measure that has gained some traction.

A Big Mac in the euro zone cost $4.17 in the UK vs. $3.41 in the US (this is back in July when the index was last updated).

Second, the main driver of currencies are interest rates. Where do the big financial institutions park their cash? Where interest rates are highest.

Interest rates in the UK are currently higher than in the US – BUT expectations are that interest rates will need to come down more in the UK than in the US. Our economy is in the mire, and growth stagnating, the market expectation is for interest rate cuts at some point to stimulate growth.

Against this the US is near the bottom of its rate-cutting cycle and the expectation is for one, max two more cuts.

Ok, I’m ignoring inflation pressures but this is just a blog after all and it is all very complicated.

Suffice it say I have been happy to keep my poker money in dollars on Neteller and various other sites, losing the potential for interest. This is partly for bankroll reasons but also as I feel the pound is too strong and had to come back.