As Brexit dominates headlines, it is not dominating investors. UK 2-Year and 10-Year gilt yields rose slightly to +0.825% and +1.287% (+2.46% and +2.30% percentage change) while the British pound remained almost untouched, bouncing by +0.46% against the EUR and slightly lower against the greenback (-0.02%).
Investors had already priced in the scenario of yesterday’s defeat for the government; they expect Brexit to be postponed. Still, given a negotiating period that has already lasted two years, it is hard to see delay as a GBP positive. Unless the European Union makes a U-turn, unlikely, the only viable solution would be to cancel Brexit.
Industrials, including automakers, remain worried. A disorderly Brexit would have a drastic impact on supply chain and the competitiveness of UK-based production. Border checks would definitely have an impact on the delivery of finished products. Reduction of foreign investment in the country is very likely, which would irreversibly weigh on economic growth and employment data long-term.
Currently trading at 1.2875, the cable is expected to bounce back along 1.2920 short-term. We recommend investors to remain cautious: the GBP could easily head south. The next big event will be tonight’s no-confidence vote, which the government is expected to survive.
Disclaimer: While every effort has been made to ensure that the datat quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein. This document does not constitute a recommendation o sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or in any other kind of investment.
Although every investment involves some degree of risk, the risk of loss trading off-exchange forex contracts can be substantial. Therefore if you are considering trading in this market, you should be aware of the risks associated with this product so you can make informed decisions prior to investing. The material presented here in not to be construed as trading advice or strategy. Swissquote Bank makes a strong effort to use reliable, expansive information, but we make no representation that it is accurate or complete. In addition, we have no obligation to notify you when opinions or data in this material change. Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments."
By Vincent Mivelaz