Brexit: decisions help the UK - June 08, 2017

Brexit: decisions help the UK

UK elections are coming today, but that doesn’t mean that Brexit will be smooth. We have analysed the performance of the GBP, stocks and PMI since the referendum to see which path the United Kingdom took and if there’s a way back.

Right after the Brexit referendum Pound started to plunge. It fell 10% against the USD in a single day to a 31-year low. Business confidence has been hurt shortly: it fell to -47, 40 points below the average from 1958 to 2017. Ever since, the GBP is crawling back up and falling again, but never reaching its original state.

Currency and stocks moving in different directions is not rare, as weak Pound helps British export. But weaker currency hurts import and domestic consumption as prices go up.

Another important thing is that uncertainty pushes down the Pound. For the first news of the Great Repeal Bill – and a real possibility of a hard Brexit – by PM Theresa May, GBP started to fall badly.

Concrete steps usually made Pound stronger on the other hand. After triggering Article 50, a small rise started and Theresa May’s announcement of the snap elections also helped the British economy. We believe that this is due to a possible strength UK’s lead may show after the elections.

But things are constantly moving. Emmanuel Macron’s win in France gave Germany a strong ally in the Brexit talks. The French are also working hard on scooping up financial companies that plan to leave the UK. Things are in flux in the UK too: after the recent terrorist attacks, Labour got stronger according to YouGov’s poll, and Conservatives only had a lead of five points (43% to 38%). Things changed since then, but the elections today will be interesting.

In the last year, we saw how jumpy the GBP is while it couldn’t really recover from its first historical fall after the Brexit. This may not change after the elections either, making the Pound vulnerable to several domestic and global events. However, futures market has cleaned up a bit as GBP short positions were unwound in a big way from mid-April that supported the Pound in the crosses getting to neutral levels before the elections.

An edited version of this post appeared on Yahoo Finance, MarketWatch and Atlanta Business Chronicle. Find the articles under our Press page.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.