Wednesday, 29 June 2016

Pound continues to rise for second day

Sterling has continued to strengthen, rising to €1.2150 vs the Euro and $1.35 vs the US Dollar. Here are this week's chart's showing the Pound's recovery so far:

     GBP/EUR:

     GBP/USD:

Why has the Pound gone up?


The gains have probably been caused by investors realising that the Brexit vote last week is not Armageddon. Share prices have also risen today, and the FTSE has already recovered all the losses we saw last Friday. Markets are a little calmer, and the fact that the UK won't be triggering article 50 of the Lisbon treaty any time soon have also calmed things a little.

Will it keep rising?


There is still no way to know if this is the start of a proper recovery though. There is still a huge amount of uncertainty, but for the moment this is mostly political uncertainty rather than economic. Cameron is leaving the hard decisions to his successor, whoever that might be (maybe Boris, but perhaps the sensible option would be Theresa May). The opposition is in complete disarray with Corbyn refusing to step down. So all in all the UK has little in the way of political leadership at the moment. The economic uncertainty could well come after the political mess is sorted out.

Will there really be a Brexit?


There are lots of noises about another referendum, but I don't think that's going to happen. Sure, there are petitions, and lots of angry posts on facebook unhappy with democracy as it didn't go their way. But, those of you that voted will have noticed that the question was "Should the United Kingdom remain a member of the European Union or leave the European Union". That question was answered. What it didn't specify was what would come after a vote to leave. Retaining access to the common market is a given, but the problem is politically to get that you also have to retain free movement of people. The political wrangling's have only just begun. My view is that we'll probably end up negotiating free access to the market, free movement of people, goods and services. We'll have to make contributions to the EU, and accept most of their laws. In other words, we'll spend the next few years negotiating to get what we had this time last week anyway!

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