And so the process begins…
Brexit, that is. It looks like by the end of March, the UK will formally start proceedings to leave the European Union. Naturally, we all knew this would happen as the government have been talking about it for a while and also have mentioned this timescale on numerous occasions. However, all we are concerned about is what it is going to do to the currency.
There are many opinions on this, of course. Many say the pound will fall quite sharply because of uncertainty, the prospects of the UK not being competitive in the industrial world and the many arguments that could follow with the EU regarding payments to get us out of the union. So, just for those reasons we could end up at 1.10.
The pound still feels weak to us, but we think 1.13 is perhaps the first assault on the downside. However, playing the contrarian, we could also say, and some are, that the move down due to the Brexit thing has already been taken into account? Quite possible, but in the short term we cannot see a rise to 1.20 or, in fact, a rise not too far above 1.17.
STG/USD is the one that could suffer and many commentators are already putting a 1.15 handle on this. This would not help STG/EUR, so again the move in the currency pair we all hold close to our hearts (STG/EUR) is influenced by the other factors and components, STG/USD and EUR/USD.
We still think the Euro has issues of its own. The Dutch election really didn’t go to plan for the anti-Europe vote, and if the French election goes the same way then, it’s likely, the Euro will gain some ground. However, there are plenty of other factors that could weaken the currency pretty quickly, namely bad economic figures and further bailouts to countries like Italy.
Anyway, it all makes for interesting times and the next couple of weeks will be pretty volatile without there being any real clear indication of what is going to happen.
Have a good week!
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The Premier FX Team
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