UK well positioned as the dollar declines

THIS is the final column in the dedollarisation series. Let's start with what's changing beneath the surface.

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The pound doesn't float in its own vacuum. Every time a global investor pulls money out of dollar bonds and looks around for an alternative, sterling can become part of the conversation. But only if it has kept and is keeping its house in order.

In a world where investors might be searching for the 'least dirty shirt', the UK can benefit from capital rotation away from the US/dollar. London still has legal credibility, deep capital markets and familiarity. Don't underestimate that. But that capital is a bit skittish. If the Government mismanages wage inflation, or fiscal deficits, sterling comes under pressure and, hey ho, we're back where we started. It's not a free pass.

For the FTSE 100, home to our multinationals, the story is a mixed one. Much of the income from FTSE100 companies comes from outside the UK. If the currency they are earning in, for example dollars, falls, their reported earnings fall. These firms already hedge - protect against fluctuations - foreign currency exposure and report in 'constant currency' (strip out the effects of exchange rate movements when they present their financial results) to strip out noise.