Money
Do You Know Where the British Pound is Heading?
In developed economies around the world, it’s generally expected that currencies will retain their purchasing power over time.
While this is most often the case, sometimes there are situations in which currency markets begin acting in ways that are less predictable.
Growing amounts of political or economic uncertainty, for example, can cause a currency to experience amplified levels of volatility — an environment in which it may see bigger ups and downs than most market participants are used to.
Brexit, Currency Risk, and the Pound
Today’s infographic comes to us from BlackRock, and it focuses in on the recent volatility of the British pound to illustrate how currency risk can impact a UK investor’s portfolio, and how this risk can be mitigated through currency hedging techniques.
Currency risk is present in any unhedged portfolio that holds investments denominated in international currencies.
When currencies experience increased levels of volatility — such as the British pound over the last five years — it can make this risk even more evident, ultimately impacting investor returns.
Brexit in Focus
In the lead-up to the EU Referendum in June 2016, and certainly afterwards, it’s been clear that the sterling has decoupled from its typical trading patterns.
Sterling volatility, as you would know, is at emerging market levels and has decoupled from other advanced economy pairs.
– Mark Carney, Bank of England (September 2019)
Every twist and turn in the Brexit saga has helped stoke fluctuations in the value of the pound, especially in usually stable pairs such as EUR/GBP or USD/GBP. It is possible that these swings could continue throughout 2020, and even beyond.
What impact can these fluctuations have on investment portfolios, and what can investors do to avoid them?
Currency Risk 101
The challenge of currency risk is that it can affect returns, either positively or negatively.
In other words, in addition to the risk you are exposed to by owning a particular investment, you are also at the mercy of foreign exchange rates. This means the performance of your investment could be canceled out by currency fluctuations, or returns could be amplified if exchange rate movements are to your advantage.
For example, in a typical UK portfolio that holds 60% global equities and 40% global bonds, currency risk actually has the highest projected risk contribution:
Projected Risk Contribution (60/40 Global Portfolio)
- Foreign Exchange Risk: 4.55%
- Equity Risk: 3.36%
- Interest Rate Risk: 0.44%
- Spread Risk: 0.06%
- Total: 8.40%
When there is added volatility in currency markets, like in recent times, even a home-biased portfolio can be adversely affected. Given this, how can investors be sure they are getting a return from the underlying assets in a portfolio, instead of from unpredictable currency swings?
To Hedge, or Not to Hedge
There is a range of strategies that allow investors to hedge currency risk, but one simpler option may be to simply buy a fund (such as an ETF) that is hedged.
That said, not all investors may want to hedge currency risk. For example, an investor has a specific foreign exchange view (i.e. that a currency will go up or down in value) may want to purposefully get exposure to currency risk to take advantage of this view.
While it may not always make sense to use currency-hedged funds, they can reduce the overall investment risk on international exposures.
And if you are not so sure of where the pound is heading in coming months, now could potentially be a good time to explore such a tool.
Central Banks
Charted: Public Trust in the Federal Reserve
Public trust in the Federal Reserve chair has hit its lowest point in 20 years. Get the details in this infographic.

The Briefing
- Gallup conducts an annual poll to gauge the U.S. public’s trust in the Federal Reserve
- After rising during the COVID-19 pandemic, public trust has fallen to a 20-year low
Charted: Public Trust in the Federal Reserve
Each year, Gallup conducts a survey of American adults on various economic topics, including the country’s central bank, the Federal Reserve.
More specifically, respondents are asked how much confidence they have in the current Fed chairman to do or recommend the right thing for the U.S. economy. We’ve visualized these results from 2001 to 2023 to see how confidence levels have changed over time.
Methodology and Results
The data used in this infographic is also listed in the table below. Percentages reflect the share of respondents that have either a “great deal” or “fair amount” of confidence.
Year | Fed chair | % Great deal or Fair amount |
---|---|---|
2023 | Jerome Powell | 36% |
2022 | Jerome Powell | 43% |
2021 | Jerome Powell | 55% |
2020 | Jerome Powell | 58% |
2019 | Jerome Powell | 50% |
2018 | Jerome Powell | 45% |
2017 | Janet Yellen | 45% |
2016 | Janet Yellen | 38% |
2015 | Janet Yellen | 42% |
2014 | Janet Yellen | 37% |
2013 | Ben Bernanke | 42% |
2012 | Ben Bernanke | 39% |
2011 | Ben Bernanke | 41% |
2010 | Ben Bernanke | 44% |
2009 | Ben Bernanke | 49% |
2008 | Ben Bernanke | 47% |
2007 | Ben Bernanke | 50% |
2006 | Ben Bernanke | 41% |
2005 | Alan Greenspan | 56% |
2004 | Alan Greenspan | 61% |
2003 | Alan Greenspan | 65% |
2002 | Alan Greenspan | 69% |
2001 | Alan Greenspan | 74% |
Data for 2023 collected April 3-25, with this statement put to respondents: “Please tell me how much confidence you have [in the Fed chair] to recommend the right thing for the economy.”
We can see that trust in the Federal Reserve has fluctuated significantly in recent years.
For example, under Alan Greenspan, trust was initially high due to the relative stability of the economy. The burst of the dotcom bubble—which some attribute to Greenspan’s easy credit policies—resulted in a sharp decline.
On the flip side, public confidence spiked during the COVID-19 pandemic. This was likely due to Jerome Powell’s decisive actions to provide support to the U.S. economy throughout the crisis.
Measures implemented by the Fed include bringing interest rates to near zero, quantitative easing (buying government bonds with newly-printed money), and emergency lending programs to businesses.
Confidence Now on the Decline
After peaking at 58%, those with a “great deal” or “fair amount” of trust in the Fed chair have tumbled to 36%, the lowest number in 20 years.
This is likely due to Powell’s hard stance on fighting post-pandemic inflation, which has involved raising interest rates at an incredible speed. While these rate hikes may be necessary, they also have many adverse effects:
- Negative impact on the stock market
- Increases the burden for those with variable-rate debts
- Makes mortgages and home buying less affordable
Higher rates have also prompted many U.S. tech companies to shrink their workforces, and have been a factor in the regional banking crisis, including the collapse of Silicon Valley Bank.
Where does this data come from?
Source: Gallup (2023)
Data Notes: Results are based on telephone interviews conducted April 3-25, 2023, with a random sample of –1,013—adults, ages 18+, living in all 50 U.S. states and the District of Columbia. For results based on this sample of national adults, the margin of sampling error is ±4 percentage points at the 95% confidence level. See source for details.
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