Morning Brief – Fragility

Morning Brief – Fragility

Thu 30 Dec 2021



As the year draws to a close, the anniversary of Biden’s time in office also draws ever closer. Partisan politics will likely define your view on the relative success/failure of this term. In fact, there is significant momentum behind voices against incumbent leaders/parties on both sides of the Atlantic, here in the UK and in the USA. Of recent presidents, Joe Biden has the lowest satisfaction rating amongst the US electorate bar one former President. Yep, you guessed it, Barak Obama. Just kidding, yes, it’s Trump’s groundbreaking 1-year in 37% versus Joe Biden’s 42%. So what might political instability, resignations, handovers of power and even general elections look like should they play out.


To some extent the world is growing more comfortable with Covid. Sure, Omicron presents its own challenges not least by being (one of) the newest and therefore least understood variants. Fresh threats to public health and supply chains once more should not be written off but at the same time seem contained and manageable. So we can take the question at face value. Political instability if it arose in the US is likely to still come in second to the evolving backdrop of US monetary policy. That alongside the safe haven demand for the Dollar would mean that anything but total anarchy would likely still leave the Dollar stronger into year end ‘22 from where we stand today.


The case for UK Pound stability in the face of political risk is less convincing. GBP has already shown a relative disregard for the surprise rate hike the Bank of England delivered this month. Monetary policy adjustment is less significant a factor than it is for the US Dollar largely because of the size of the US balance sheet and the scope for tightening in an outperforming economy. Political risk in the UK could therefore bring downside momentum to a market already wary of GBP. Tabloids have not yet forgotten no.10’s wine and cheese and pressure remains on the UK government.




Discussion and Analysis by Charles Porter

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