Uncertainty for the Pound Sterling as Memo is Leaked

pound-uncertainityTheresa May, the UK Prime Minister, told the country to take the new opportunities ahead and to set the standard for other nations to follow during her recent speech. The speech had a positive reception but was later overshadowed by a memo that was made to the Cabinet Office. The Times and the BBC saw the memo and reported that it spoke about the lack of a common exit strategy for the country. The government denied what the memo said, according to a BBC report. The memo noted that it would take at least another six months to prepare to Brexit and require as many as 30,000 additional staff members to handle the amount of paperwork involved.

The memo further stated that the Prime Minister would initiate Article 50 that would begin the two-year process of exiting from the European Union. She hopes to accomplish this trigger by March making it a close deadline if the memo is accurate and true. The government’s current hopes are to receive a High Court ruling that would require Article 50 to have to go through parliament before it can be trigger hard-Brexit. The date for the appeal is set to 5-8 December.

The speech that May gave at the Lord Mayor’s Banquet made the drive that the PM has to free trade and free markets clear. This has been an important area of discussion in Brexit talks. The memo saw the Pound jittering but recovered later in the week against the Euro proving that there are still positive views about the currency.

Analysts point out that it is possible that the dip seen in the Pound Sterling’s performance as of late is due to an overbought market unwinding. Danske Markets analysts say that they see a positive outlook for the Pound. While most agree that Trump winning the U.S. elections is not likely going to be good for the GBP, much about Trump’s political plans is unknown, making markets and price actions uncertain but not pessimistic. The Danske firm has recently sidelined on the GBP but if the current rally continues, they will look to sell GBP against the EUR or USD. With the Brexit negotiations forthcoming, the GBP could be hit again. Analysts speculate that the GBP/EUR forecast should trade similarly to before Brexit was priced in – around the 1.2047-1.1362 range.

In other news, the UK government have arranged a three-line bill in order to begin the process of leaving the European Union, according to BBC reports. This will allow May to reach her deadline for an Article 50 trigger. Many believe that the legislation will be difficult for MPs to amend because it is so tightly drawn.

Ministers have prepared to lose their Supreme Court appeal by drawing up the legislation, forcing parliament to be consulted. They plan to announce the bill in the Commons as soon as the Supreme Court ruling has gone through. The markets will likely not respond positively to this as it will be seen as the bill being shut down and not play into a soft-Brexit.

The prime driver behind global foreign exchange at the moment is the rising of bond yields. This begs to question whether this current dynamic will extend to the Sterling and other currencies that have in the past favoured these conditions.

Analysts from Nordea Markets believe that the reaction to Trump becoming president has been an overreaction and that rates will go back to their previous state in the near future, especially for Europe. Many hedges are waiting for the current boon to calm down before entering back into their long positions. Many Forex traders are adhering to this belief while some are entering the markets on sites such as CMC Markets.

The head of the FX Strategy and UniCredit Bank in London, Dr. Vasileios Gkionakis, says that there is still remaining uncertainty in investors as many assess the current situation with Trump as president, mainly waiting to see what his political route is going to be in the future. The market will likely be volatile and have bigger than usual swings as his policies become clear. Many believe that the current market levels cannot be compared to the real rate differentials.

About Keerthika Singaravel

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