This week, the pound is back in a familiar position of floating amidst Brexit uncertainties. As the currency markets continue to digest the global outcome of the European elections, investors are nervous to place too heavy a bet in either direction, with such lack of clarity around.
|Currency Pair||% Change (Month)||Difference on £200,000|
We are still asking ourselves what Brexit means and where events will take us. There is a focus on who will be the next UK Prime Minister following Theresa May’s resignation. Boris Johnson is favourite but with 10 other candidates vying for the top spot, nothing is certain here. A top quality for any serious Tory leader has to be that they are not ruling out no-deal, a message that is unlikely to offer the pound many favours in this period.
It seems to me that UK politics is becoming more about a choice between Remain and Leave, rather than the traditional Conservative and Labour split of the electorate. This is likely to make for some interesting news in the next few weeks as both major parties look set to become forced into make some tough choices about where they stand. The betting markets are often a helpful indicator of sentiments, currently a second referendum is being called at 7/2. This has improved in recent weeks and may rise further if Labour backs such a plan.
It is not possible to rule out the possibility of further erosion of the pound’s gains since January. As the general political malaise and lack of reasons to be excited about the pound, force investors to avoid the currency whilst they await more pressing news.
My personal view is no-deal will not happen. Whilst it will remain a possibility by default, parliament seems very much against it and I see the only way of it happening, is through being voted on in a second referendum or general election.
These two latter events I see as the most likely outcomes, as Brussels refuses to capitulate to British politicians, who even 3 years later cannot make up their mind of the Brexit they seek.
Sterling is still higher than where it began the year against the euro. Based on the interbank rate, £200,000 is worth an extra €6,600 compared to the 1.10 interbank lows at the turn of 2019.
One thing in the currency markets to be aware of is that we cannot ever guarantee what lies ahead. Therefore, clients looking to buy or sell the pound should perhaps be making some careful plans around strategy to ensure they are not wrong footed by any sudden shifts in sentiment.
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