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Monthly update: August 2022

August Performance: -14.61% YTD: -42.61%

Another month has flown by in the blink of an eye! Unfortunatley we closed out August -14.61%

We continue to see very volatile markets which is proving somewhat difficult to navigate.

Sterling fell against the dollar on Thursday, adding to August losses that were its worst since late 2016, as storm clouds gather over the British economy. The pound was down 0.5% at $1.1565, having fallen to its lowest since March 2020.

The pound lost 4.6% against the dollar last month in its worst performance since October 2016, fuelled by concerns about slowing growth in the British economy as inflation gathers pace. Sterling also suffered its worst month against the euro since mid-2021. Against the euro, the pound fell 0.1% to 86.55 pence.

British inflation soared to 10% in July, its highest in 40 years, and is predicted to climb higher, squeezing the pay packages of hard-hit consumers further. British government bonds are suffering, too, enduring their biggest monthly fall since 1994. The pound has lost over 14% against the dollar so far this year. “This is getting serious,” analysts at ING wrote.

“Our premise for sterling staying supported was that foreign owners of Gilts would have to cut FX hedge ratios because of rising sterling hedging costs. That view is, shall we say, challenged by foreign investors dumping Gilts.”

Traders said sterling may test its low of $1.1413, plumbed in March 2020 as the COVID-19 pandemic wracked markets.

Sterling’s problems have been compounded by a strengthening dollar. The U.S. dollar index which measures the greenback against a basket of currencies, was up 0.18% at 108.93, not far off its two-decade high of 109.48 hit on Monday.

The greenback hit a 24-year high against the Japanese yen on Thursday, with investors expecting sharply higher U.S. interest rates while those in Japan are seen as staying low.

“It’s not just sterling weakness - it’s a dollar strength story,” said Michael Hewson, chief markets analyst at CMC Markets. “Sterling has its problems, but they are not unique to it - high inflation, surging energy prices and falling disposable incomes.”

I have four months remaining to attempt a recovery and it is going to be a massive challenge but one I am really looking forward to.

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