GBP near US Dollar parity – what does this mean for wine investors?

Sterling plunged to its lowest ever level against the US$ on 26th September 2022, so what are the implications wine investors?

The greenback has had a rampant run in 2022 against global currencies but GBP fell as low as $1.033 on the morning of the 26th September, as markets responded to Chancellor Kwarteng’s Mini Budget statement.

In early September, the pound was trading at $1.135 and dipped to a near 40-year low to $1.14 prior to the announcement of the UK Government’s plan for growth being based largely on tax-cuts. Sterling is just about at parity with the US dollar for the first time in US currency history. Some commentators are now speculating on Sterling’s value falling below the Dollar.

Sterling’s dramatic decline occurring simultaneous to the Government borrowing costs hitting 4.5%, the highest level since August 2008 is also a cause for concern. In addition, oil prices are based in US$, which will further fuel inflation in the UK. The Bank of England is likely to adopt a more aggressive approach to interest rate rises in the coming months. All of this in addition to increased energy bills as we approach the winter months for UK consumers and companies points to an incredibly challenging and unpredictable economic period.

What does the currency position mean for wine investors?

Wine investors who acquire their wine in Sterling are unaffected by the £:$ currency dynamic and will still be enjoying the current period of stability and growth in the sector. For owners, it is worth getting a valuation on your investment wine periodically to monitor individual price performance and to consider optimising portfolio returns by regional and vintage diversification.

For US dollar buyers, there is a relatively rare opportunity right now to acquire investment wines based in Sterling at a very significant discount. The current USD : GBP currency conversion means that US dollar buyers are getting investment wines at a discount over 15% on prices in December 2021. This is stimulating additional demand and providing continued energy to the robust fine wine market, which has remained stable in contrast to volatile financial markets which continue to be volatile and unpredictable.

Which wines are leading wine investment performance right now?

Champagne and Burgundy investments continue to enjoy strong growth with the Liv-ex Burgundy 150 up 25.3% in 2022 to date and 48.5% over the last year. The Liv-ex Champagne 50 is the leading performer over one year seeing a trend of 52.3% growth and 18.4% YTD.

Louis Roederer, Cristal Champagne 2013 saw 14.3% increase in value in the month of August 2022.

Top 5 traded wines in September 2022 (week 16 – 22 September, 2022):

Source: Liv-ex.com, 26th September 2022 (Liv-ex Mid-price 12 x 75cl)

For more information on the current state of the fine wine market see our latest Wine Investment Market Report and speak to our expert wine investment team on 0203 384 2262.