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Pound unlikely to rally unless hard Brexit is ruled out

Publication Date: 14 Dec 2018 - By Gaurav Sharma (Editor ReachX) By Gaurav Sharma (Editor ReachX)
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FX & Rates FX UK EU ex-UK

A frenetic few days in British politics have failed to cast any light on the Brexit outlook, and by default how the pound might suffer in light of the uncertainty, according to a City analyst. 

In a note to clients, Kit Juckes, Head of Forex at Société Générale, said the pound appears "stuck in the vicissitude of directions", adding that what the foreign exchange market had seen over the last few days was the end of a chapter, but there’s no new book yet.

“A ‘no deal' Brexit, a second referendum, a cosmetically-adjusted version of the current deal and an extended period before the UK leaves the EU, are all possible.

“The last choice (a delay) is the most likely. Sterling is still trading about 8% (in real effective terms) above its 1976 low, and 15% below its post Bretton Woods average. For now, we have no better idea than to look for sterling to bump along the bottom of this range, unable to justify a significant rally unless a hard Brexit is ruled out.”

Elsewhere, Juckes also described the end of the ECB's bond-buying programme, signalled this week, as an important point in the history of the eurozone and the euro, post-crisis. “But bond buying was only one of the two key ingredients to Mario Draghi's magic policy sauce.

“The other was negative rates and the combination was what was so potent in crowding investors out of European bonds and out of the euro itself. In trade-weighted terms, the euro is already well past its worst levels, but a significant move higher against the dollar can wait a few more months,” Juckes concluded. 

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Gaurav Sharma Editor ReachX

 

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