CURRENCY WATCH
Ministers reported willingness to give up membership to the customs union. An exit from the customs union could disrupt investment into the UK major export sectors.
Te other danger is that if negotiations between London and Brussel are indeed as rocky as expected, this could cause a number of high profile companies who
have leave major
operations in the UK to activate their contingency plans and
which
would make London’s commercial real estate very vulnerable.
Tere is also the fact of dollar strength if the FED is aggressive with their interest rate hikes this year and that the euro will gain momentum aſter the French elections which many believe will see the very controversial candidate Marine Le Pen losing overall after the 2nd round of elections in May.
March, the sterling reaction was muted at best. It is almost like that the currency market has already come to terms with the UK leaving the European Union.
Another reason for the bulls to stake their claim of a higher GBP is talk of the BOE raising interest rates as early as next year. Looking at MPC Official
FX
Bulls also believe that the USD will start to come under pressure due to Trump not following through on his tax cuts and other fiscal policies. And the Euro will also again begin to feel the strain, not because Marine Le Pen will win the French elections but if the UK economy continues to perform then it might tempt other EU nations to look at their own positions within the union. Ten there’s the interest rate disparity, with the BOE more likely to raise rates before the ECB.
At the end of
the day,
UK economy has been growing at the fastest rate among the G7 in 2016
In the bull corner though there are opinions that we could see the sterling end the year higher with even the $1.30 level against the USD being reached. The driving factors behind this is that the worst of the Brexit fears are now priced into the market. Tere could be a point here as when it was announced that Article 50 will be triggered on 29th
Bank Rate votes, there was one member who voted for a rate hike. Tis was the first time there was a split between policymakers since last July. Add into that the sudden jump in CPI to 2.3% versus the expectation of 2%, inflation is indeed moving higher. And another reason is the UK economy is holding its own with it actually growing at the fastest rate among the G7 economies in 2016 despite the fears of it falling into recession following the Brexit vote.
w h a t e ve r corner you stand in, only the market will dictate the final outcome for the sterling in 2017. Due to fact, we have
never had a EU member leave before, all of us will be waiting to see what the actual impact will be, not just to the UK but to EU and to a lesser extent the global economy. Either way, the volatility will most likely continue and the world’s oldest currency will still be as interesting as ever.
James Trescothick
Chief Global Strategist EasyMarkets
FX TRADER MAGAZINE April - June 2017 13
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