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February 2016

Investors shy away from Brexit GBP

Published: Wednesday 24 February 2016

  • Sterling hits lowest since 2009 against USD
  • Investors shy away from Brexit GBP
The global economy is stuttering and may be starting another decline after a lukewarm recovery from the 2008 crash. At the same time, Donald Trump is easing his way ever closer to the White House and its Oval Office. It's probably just a coincidence though isn't it?
Sterling had a pretty dreadful day at the office in some ways but held its nerve in others. The distinctly dovish tone set by the members of the Bank of England as they testified to the Treasury Select Committee practically ruled out any interest rate hikes for this year and maybe next and even opened the door to the potential for further interest rate cuts. This plus the Brexit excitement cause Sterling to drop below USD1.40 for the first time since early 2009. I doubt the reports from the British Bankers Association or the CBI's retail sector survey will be bold enough to cause a sudden appreciation in the Pound but there are GBP buyers out there.
Everyone I spoke to yesterday asked pretty much the same question, "do you think the Pound will bounce from here?" and the answer is another question really. If you were a hedge fund manager or an international investor and you had the option to invest in Sterling where the EU vote is in the offing or elsewhere in countries that don't have that hassle, then where would you put your money? On the basis that investors are generally (with a few exceptions) very cautious, the answer is that Sterling is most likely to find fewer buyers in the months ahead. So those who have to sell the Pound to buy other currencies will have to choose their opportunities carefully or buy on a forward contract to guarantee a rate. 
Other than the US service sector purchasing managers index, the rest of today is largely devoid of tier one data so traders will watch the Brexit debate and gear up for tomorrow's UK GDP data and Friday's US GDP data.
Have a great Hump Day and let's see what else the world can throw at the Pound.

The Boss

A young manager is appointed to run a branch office but he is a bit full of himself and quite absorbed by his management books. Nevertheless, he is dismayed at how disrespectful the employees are towards him. Many are older and more experienced than him within the company and he finds he has become a bit of a laughing stock. So, to counter this rudeness, he purchases a sign that says in very large bold font, 'I am the Boss' and places it on his office door.
When he arrives at work the next morning, there is another sign blu-tacked beneath his that says, 'Your wife wants her sign back'.
FX Research by David Johnson

Daily Currency Analysis with Zeta Webber

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