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Attachments: Brexit and its potential impact on the value of sterling...
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Brexit and its potential impact on the value of sterling...

  • Post #1
  • Quote
  • First Post: Edited 5:45pm Apr 30, 2018 9:42am | Edited 5:45pm
Rather than litter the news section with our opinions wrt the impact of Brexit on sterling and potentially fall foul of FF code of conduct, it might be best to keep our comments, thoughts, articles etc. limited to one thread here.

Fwiw; I predict volatility increasing in GPB over the coming months and sterling pairs testing their 2017 lows in June, unless a border resolution in Ireland is somehow discovered. Or alternatively by October, when the process will imho begin to fall apart.
"The meek shall inherit the earth.." Yeah right, good luck with that shit..
Quoting Spreadbetter
Rather than litter the news section with our opinions wrt the impact of Brexit on sterling and potentially fall foul of FF code of conduct, it might be best to keep our comments, thoughts, articles etc. limited to one thread here. Fwiw; it’s worth I see volatility increasing in GPB over the coming months and sterling pairs testing their 2017 lows in June, unless a border resolution is somehow discovered. Or alternatively by October, when the process will imho begin to fall apart.
Am wondering, is there any good news that could potentially cause GBP to rally re. EU deal.

I don't mean anything like a snap re-election or another Brexit vote etc.

I mean something in terms of a "Brexit deal"?

I accept the UK cannot be better out than in in terms of EU trade deal (otherwise what would be the point in being a member).

Just open to ideas and thoughts as I can't seem to think of any thing.
Any positive news, such as a potential BINO (Brexit in name only) likely outcome, tends to increase GBP price.

The uk govt is facing two options; BINO or WTO hard Brexit. BINO is the result markets and international business wants, a WTO hard Brexit delivered by October will cause GBP to collapse.

Far too many market commentators in the mainstream media, have been seduced into believing a solution to the Irish border issue will be found to satisfy all parties, that's impossible. No border can only be secured by staying in the customs union, come out and it's hard WTO Brexit with a border which collapses the good Friday agreement.

if Barnier sticks to his June ultimatum to come up with a border solution and none is found then GBP will be slaughtered.

Quoting Tesmy
{quote} Am wondering, is there any good news that could potentially cause GBP to rally re. EU deal. I don't mean anything like a snap re-election or another Brexit vote etc. I mean something in terms of a "Brexit deal"? I accept the UK cannot be better out than in in terms of EU trade deal (otherwise what would be the point in being a member). Just open to ideas and thoughts as I can't seem to think of any thing.
"The meek shall inherit the earth.." Yeah right, good luck with that shit..
Quoting Spreadbetter
Any positive news, such as a potential BINO (Brexit in name only) likely outcome, tends to increase GBP price. The uk govt is facing two options; BINO or WTO hard Brexit. BINO is the result markets and international business wants, a WTO hard Brexit delivered by October will cause GBP to collapse. Far too many market commentators in the mainstream media, have been seduced into believing a solution to the Irish border issue will be found to satisfy all parties, that's impossible. No border can only be secured by staying in the customs union, come...
Thanks SB:

BINO = Good point.

But won't BINO cause political turmoil? Not just amongst population who voted for Brexit, but also the hard line Brexiteers within the Conservative party? Could BINO see a snap election brought about?

And putting some additional questions out there:

Which of the below option would be the WORSE for GBP:

1 - A Conservative govt in power with BINO policy - and all the internal bickering as well as public annoyance with it from the 52%
2 - A Labour victory as a result of some snap election with J.Corbyn in charge?

Or do you think people will be so tired by then, they will happily go along with 1?

All this is theory I know, but it's worthwhile considering.
Quoting Spreadbetter
Any positive news, such as a potential BINO (Brexit in name only) likely outcome, tends to increase GBP price. The uk govt is facing two options; BINO or WTO hard Brexit. BINO is the result markets and international business wants, a WTO hard Brexit delivered by October will cause GBP to collapse. Far too many market commentators in the mainstream media, have been seduced into believing a solution to the Irish border issue will be found to satisfy all parties, that's impossible. No border can only be secured by staying in the customs union, come...

Agree with your Irish border point.

Boris Johnston seems to think some sort of electronic border would be easy to adopt so will not cause any interruptions but then BoJo isn't someone I take seriously.

The DUP seem to have Ms May over a barrel so I doubt anything she does is going to agree with all sides on the Irish side of the equation.

Would be interesting to keep an eye on GBP positioning - too extreme a short and it could shoot up the other way (So many expected the EUR to collapse several years ago before darghi's "Whatever it takes" moment).

I doubt Carney would be able to do anything to support GBP?
- Can't do more QE/lower rates to support economy as this cause GBP to fall even more.
- Can't raise rates as the last thing this nation needs after a hard Brexit will be much higher rates.

I can't help but feel that with so much negativity no matter which way you turn, surely if it was this obvious to be short GBP, we'd be seeing much more "panic" in UK asset prices? Unless we have been conditioned to ignore all bad news since the World started it's QE madness?
Not sure if this counts as pure brexit talk but I shall make my case.

I honesthonesthonestly cannot see how Brexit can be good for the pound. It is a politial dilemma on both parties as to what action to take.

Allow me to make my case by first looking at the UK's economy post-referendum.
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GBP dropped sharply following the months post referendum. Attached is the chart of GBPUSD. GBP depreciate over 18% against the USD!

As a result, inflation was pushed up sharply because of the rapid depreciation of the pound.
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In the meantime, wage growth failed to match the pace of inflation.
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This causes a net decrease in real purchasing power of UK's citizens.
You must be thinking "hey thats easy! Just get BoE to increase interest rate to curb the inflation!"
No they cant! Increasing interest rates means eroding purchasing power further and that might spark a negative feedback loop in consumer spending.
When consumers spend less, businesses earn less profits. And when businessess earn less profits, they lay off workers, and those laid off workers will spend less as they do not have a stable income. And the vicious deflationary cycle starts.

Now mind you, the deflationary cycle I mentioned will happen irregardless of whether BoE hikes rates or not. In fact, the impact has already manifested in the economic data.
Take a look at the falling retail sales
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And the slowdown in GDP growth
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So what happens when an economy loses productivity? Its currency depreciates!
Is there a way to save the day? I honestly dont know, but my best guess is that Carney could possibly talk up the pound. But how much is he able to do this before the market catches on? Once? Twice? Three times? Alternatively, UK could simply bite the bullet and ride out this "mini recession".

Okay, now onto the potential impact of Brexit.
UK's economy is predominently reliant on it's service sector
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Data shows that in 2016, about 80% of UK's GDP came from it's service sector!
Amongst the service sector, a large proportion constitutes of financial services.

So when UK does leave the EU, they may lose terms of trades which makes it harder for these financial companies (E.g Banks) to do business with the rest of EU. Alternatively, these financial companies may intent to relocate to other parts of EU to retain the benefits. (Read: https://www.bloomberg.com/news/articles/2018-03-28/london-brexodus-underway-as-financial-firms-relocate-1-000-staff)
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When that happens, UK basically loses its major source of productivity, recall that it can contribute up to 80% of UK's GDP. Eventually, that will be reflected in its currency (AKA It falls!)
The good news is that most businesses are in wait-and-see mode. Thus a reversal in the brexit decision (Unlikely) or UK's ability to secure favourable trade terms (Extremely unlikely) may salvage this situation. I state the latter as extremely unlikely as if EU allows UK to leave the bloc with their privilege, then other countries may follow suit.

So I conclude my bearish case. UK is in a limbo. And Brexit isn't going to help. Only a decision reversal could save the pound...
I look for value wherever it can be found
While I agree 100% with Spreadbetters analysis, I think you both raise good points. GBP is a difficult instrument to trade right now with key issues concerning the UK economy plagued with so much political and economic uncertainty.
Regarding why in the face of so much gloom its not collapsed, is I think a function of market psychology, to assume the best, until a very clear contrary direction emerges.. A sort of faith in the ultimate triumph and influence of better counsel, common sense and that overwhelming business pressure will prevail.
I wish I could be as sanguine.
Quoting synicz
Not sure if this counts as pure brexit talk but I shall make my case. I honesthonesthonestly cannot see how Brexit can be good for the pound. It is a politial dilemma on both parties as to what action to take. Allow me to make my case by first looking at the UK's economy post-referendum. {image} GBP save the pound...
Thank you for the detailed analysis.

Can't find a fault with your reasoning and I have to agree.

But as I asked, if there simply does not appear to be a positive irrespective of which way we turn, why has GBP held up so well (in fact last week, it once again reached 1.4400 - just 600 pips shy of it's Brexit night highs of just over 1.5000)

But as Bilbo stated, maybe market psychology has changed in the past ten years with the advent of QE, "no such thing as bad news". Perhaps all traders have been psychologically programmed now to just "buy the dip" and have faith in the Central Bankers. Maybe it won' really matter until it matters.

If I was some huge hedge fund (George Soros 1992) I would certainly be lining up some sort of option strategy to play for a GBP crash.
  • Post #9
  • Quote
  • Edited 5:03pm Apr 30, 2018 4:50pm | Edited 5:03pm
I’m in two minds as to whether or not it’d create chaos. Firstly; on the basis that the Tories will always put party and power before the interest of the country, therefore whatever Mayhem decides; BINO or hard/WTO Brexit, the Brexit hard line rebels will fall into line given the alternative is a vote of no confidence. Therefore the DUP will ultimately pull the strings on this deal, without their support the Tory govt falls. Democracy eh? The U.K. future being held hostage by a religious group of terrorist supporting bigots who were bunged two billion for their support...

Secondly; never overestimate the stupidity of the electorate, if the mainstream media sell them the idea of BINO they’ll buy it, despite it rendering the referendum and the millions of words and thoughts exhausted since June 2016, redundant. Interestingly we now have a Tory peer claiming that due to Cambridge Analytica the referendum result should be voided.

As for your comments on sterling; as we all know markets can react violently once the truth is out there. So far market makers and movers have been influenced by the rhetoric coming from both sides; that a grown up negotiation and compromise will take place. But as you can clearly see today, the clock is ticking down and Barnier is (once again) losing patience. He’s issued a June ultimatum for a border resolution, ahead of the October deadline and the exit of March 2019. The U.K. govt has run out of road to kick the can down.

Quoting Tesmy
{quote} Thanks SB: BINO = Good point. But won't BINO cause political turmoil? Not just amongst population who voted for Brexit, but also the hard line Brexiteers within the Conservative party? Could BINO see a snap election brought about? And putting some additional questions out there: Which of the below option would be the WORSE for GBP: 1 - A Conservative govt in power with BINO policy - and all the internal bickering as well as public annoyance with it from the 52% 2 - A Labour victory as a result of some snap election with J.Corbyn in charge?...
"The meek shall inherit the earth.." Yeah right, good luck with that shit..
Good points, will respond fully tomorrow

Quoting synicz
Not sure if this counts as pure brexit talk but I shall make my case. I honesthonesthonestly cannot see how Brexit can be good for the pound. It is a politial dilemma on both parties as to what action to take. Allow me to make my case by first looking at the UK's economy post-referendum. {image} GBP dropped sharply following the months post referendum. Attached is the chart of GBPUSD. GBP depreciate over 18% against the USD! As a result, inflation was pushed up sharply because of the rapid depreciation of the pound. {image} In the meantime, wage...
"The meek shall inherit the earth.." Yeah right, good luck with that shit..
  • Post #11
  • Quote
  • Edited 5:19pm Apr 30, 2018 4:59pm | Edited 5:19pm
This is is a good point; we imagine that the selfservatives will see sense, we imagine that there’ll be grown ups sitting around the table protecting the U.K. from social, political and economic implosion. When the only adults in the room appear to be E.U. officials, desperately attempting to protect us from ourselves.

As I’ve stated before; markets are sanguine wrt sterling’s value, as collectively the belief is a sensible compromise will be reached. The only sensible compromise is to allow the sovereignty of parliament to remain intact, by allowing M.P.s to vote on the result of the referendum and then organise ref2, based on the deal the E.U. finally proposes, ergo the full facts and disclosure are now known.

Sterling isn’t as unpredictable as it once was; shortly after the ref decision it reacted violently to any new developments, now not so much. But as the clock ticks down the violent spikes will return. Of that I’m sure.


Quoting Bilbo
While I agree 100% with Spreadbetters analysis, I think you both raise good points. GBP is a difficult instrument to trade right now with key issues concerning the UK economy plagued with so much political and economic uncertainty. Regarding why in the face of so much gloom its not collapsed, is I think a function of market psychology, to assume the best, until a very clear contrary direction emerges.. A sort of faith in the ultimate triumph and influence of better counsel, common sense and that overwhelming business pressure will prevail. I wish...
"The meek shall inherit the earth.." Yeah right, good luck with that shit..
Quoting Tesmy
{quote} Thank you for the detailed analysis. Can't find a fault with your reasoning and I have to agree. But as I asked, if there simply does not appear to be a positive irrespective of which way we turn, why has GBP held up so well (in fact last week, it once again reached 1.4400 - just 600 pips shy of it's Brexit night highs of just over 1.5000) But as Bilbo stated, maybe market psychology has changed in the past ten years with the advent of QE, "no such thing as bad news". Perhaps all traders have been psychologically programmed now to just "buy...
I am puzzled as well. My guess is that investors are discounting the decline in UKs economy. And any potential adverse impact from brexit. Simply put, the markets are basically saying "Nawww aint nothing bad gonna happen to the UK"

Another possible reason is that the weaker pound has a net positive impact on UKs exports. Specifically financial services exports (yes you could "export" services too!)
And as established in my earlier post, financial services contributes to a large part of UKs economy. Thats why we see the pound rise.

The only issue I have with my theory is that why doesnt this increased demand support the various economic data then? If financials export more, they earn more, wont that trickle into higher wages, lower unemployment and higher GDP? Or maybe these readings have a lagged effect. So currency leads while the other economic indicators lags. I dont know for sure. But those are my suspicions.
I look for value wherever it can be found
The only solution involves staying in the customs union, ergo this could be positive for GBP on Wednesday, if the solution is credible...

“The U.K. is proposing a new plan to kick-start stalled Brexit talks and make progress on the vexed issue of the Irish border as negotiations resume in Brussels this week.

Brexit Secretary David Davis said he wanted to “move quickly” when talks restart Wednesday in order to reach a solution to avoid a hard land border with Ireland once the U.K. withdraws from the bloc.

Prime Minister Theresa May’s team of negotiators have drafted a new template for how the U.K. and the EU should work together on Britain’s two favored options for...”

https://www.bloomberg.com/news/articles/2018-04-30/u-k-proposes-solution-to-brexit-deadlock-over-irish-border
"The meek shall inherit the earth.." Yeah right, good luck with that shit..
Quoting dogdays713
how Brexit can be good for the pound, the GBP will lose all that dead weight from the EU. that's how. like the old saying as sound as the pound
"Sound as a pound" was an idiom used when the pound was the Worlds reserve currency. Those days of Empire are long gone, keep dreaming if you think we'll be getting that back. We have neither the financial assets nor the Armed forces to achieve that.

Anyway, can we have a little more meat to this statement please? Motivational hyperbole is all good and well but lets have some reasoning here.

We had plenty of hot air before the referendum (the NHS will get £350mn a week etc etc), less immigrants etc etc.

We will not simply be given free reign to do as we please. If we want to do business with Europe, there will be a price to pay. Europe is simply not going to allow us to have a better deal outside than inside. If it does, the other countries like Norway etc will want to re-negotiate. Added, it acts as a great incentive for other countries to leave if they know they will get a better deal outside EU membership than being inside.

Even if we do get a deal that is supportive of GBP, I can guarantee there will be a price to pay (BINO comes to mind).
Quoting synicz
{quote} I am puzzled as well. My guess is that investors are discounting the decline in UKs economy. And any potential adverse impact from brexit. Simply put, the markets are basically saying "Nawww aint nothing bad gonna happen to the UK" Another possible reason is that the weaker pound has a net positive impact on UKs exports.
Agreed - I think a collapsing GBP will be seen as a net positive for the Export market and as such, the FTSE 100 could rally - primarily because most of the FTSE 100 companies make more from foreign markets than they do from the local market and to add, it makes UK companies more cheaper for potential take over targets.

Could also see the housing market hold up well as it makes UK house prices cheaper in foreign currency terms - although the Russian sanctions and today (1 May) there will be a proposed amendment to the money-laundering bill for UK overseas territories develop open, public registers of beneficial ownership. Will be interesting to see see if we get a flight of capital if this comes in to affect (see below article regarding this)

https://www.standard.co.uk/comment/comment/britain-must-use-registers-to-halt-flow-of-dirty-money-a3826981.html
Quoting synicz
Not sure if this counts as pure brexit talk but I shall make my case. I honesthonesthonestly cannot see how Brexit can be good for the pound. It is a politial dilemma on both parties as to what action to take. Allow me to make my case by first looking at the UK's economy post-referendum. {image} GBP dropped sharply following the months post referendum. Attached is the chart of GBPUSD. GBP depreciate over 18% against the USD! As a result, inflation was pushed up sharply because of the rapid depreciation of the pound. {image} In the meantime, wage...
Excellent sum up . Thank you
GBP falling this morning due to PMI missing the forecast, however, the Irish border issue will be the crucial tipping point over the next few days, the U.K. govt have no more bluffing room left, if the technological solution lacks credibility GBP could slump further.

Could a hard border lead to the return of violence?

Customs and security checks would likely hurt the economy on both sides of the border, and perhaps offer a daily reminder of British rule of Northern Ireland. While the province has been at peace for almost two decades, Martin McGuinness, Northern Ireland’s former deputy leader, who died in March, warned (https://www.bloomberg.com/news/terminal/OGTX9O6S972E) in 2016 that the reintroduction of a border following Brexit could aid those who oppose the region’s peace process. Other politicians argue that peace is now so deeply rooted that it would take more than a few border posts to disrupt the island.

https://www.bloomberg.com/news/articles/2018-03-02/why-ireland-s-border-is-brexit-s-intractable-puzzle-quicktake
"The meek shall inherit the earth.." Yeah right, good luck with that shit..
Just to add a TA perspective... the pullback from the lows can be contained in one channel - that suggests PA has been 'corrective'. The consequence of which means we have not had the low yet. My bet, if i were to trade such way, (although i must add that i do not!), would be for parity or as near as dammit, is on the cards, sometime in the future;

Attached Image (click to enlarge)
Click to Enlarge Name: GUd01-05-18.png Size: 138 KB


Trend is still down in the overall grand scale. That will cease if we break the pre Brexit high (around 1.50), as it stands, it very much looks like we've tapped prior Supply and it is game over already.
GoFundMe -stage-4-glioma-brain-cancer-fighter (link in my profile)
Imho sterling parity with the euro can’t be ruled out. Let’s not forget that back in September 2017 we flirted with 95.00.

Quoting The Cableguy
Just to add a TA perspective... the pullback from the lows can be contained in one channel - that suggests PA has been 'corrective'. The consequence of which means we have not had the low yet. My bet, if i were to trade such way, (although i must add that i do not!), would be for parity or as near as dammit, is on the cards, sometime in the future; {image} Trend is still down in the overall grand scale. That will cease if we break the pre Brexit high (around 1.50), as it stands, it very much looks like we've tapped prior Supply and it is game over...
"The meek shall inherit the earth.." Yeah right, good luck with that shit..
And in the Guardian, Marina Hyde says (https://www.theguardian.com/commentisfree/2018/apr/27/david-davis-brexit-tory-government-talentless) David Davis excels in a “government of all the talentless”, and even the Brexit secretary’s allies are worried – but he’s safe, because his colleagues are even worse:

It’s long been traditional to describe a lazy performance by an actor as phoned in. In the case of DExEu’s David Davis (https://www.theguardian.com/politics/daviddavis), however, he doesn’t even text it in. The secretary of state’s performance in front of the Brexit select committee this week basically amounted to a series of emoticons. He can’t do you an explanation of how in the name of magical thinking the government can square its promises on the Irish border with promises on leaving the customs union – but he can do you the shrug. ¯\_(ツ)_/¯ Did you miss it? Don’t worry. Just ask him another question and he’ll do it again …

The cabinet is now cobbled together from two sides of the referendum divide, each of whom accused the other of the most despicable lies during the campaign. Ever since, preposterously, they have expected the public to accept that they are telling the truth when they act together. How is this supposed to work? … What will eventually unite many leave and remain voters, one suspects, is the enraged conviction that the politicians should have known what they were doing with Brexit, and rather sooner than this.

https://www.theguardian.com/politics/2018/may/01/brexit-weekly-briefing-crunch-time-on-customs-union-approaches
"The meek shall inherit the earth.." Yeah right, good luck with that shit..
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