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View Full Version : Pound Traders Eye Brexit Talks to Shock It Out of Euro Doldrums



Martin@AS Financial
19th June 2017, 14:37
Interesting article from Bloomberg:

The formal start of Brexit negotiations on Monday may prove more of a catalyst for the pound than an inconclusive general election, a surprise hawkish shift by Bank of England officials and a spate of disappointing economic data.

Despite the raft of surprises to hit sterling this month, it’s set to record its tightest monthly range versus the euro since 2014. That may change as, almost one year since Britain voted to leave the European Union, U.K. Brexit Secretary David Davis and his European counterpart Michel Barnier open negotiations. The talks started with a “positive and constructive” tone, Davis said on Monday.

The two sides will hammer out how talks will be structured, whether there would be a transitional phase to help businesses to re-adjust to new rules and what the divorce would mean for rights of EU citizens living in the U.K. and Britons living on the continent.

In all of this, it’s the “tone” that interests Richard Falkenhall, senior strategist at SEB AB in Stockholm. He’s particularly keen to see how the two sides settle the contentious issue of the Brexit bill.

“The tone of the negotiations, whether they turn out to be constructive or the other way around, that may be very, very important,” SEB’s Falkenhall said, in an interview before the talks started. “One of the things they will start to discuss now is how much the U.K. will have to pay to the EU, that will be very crucial. If they reach a solution or get closer to each other on this, then I think it’s a very, very positive sign.”

The pound’s relative resilience to an otherwise tumultuous time in British history is in contrast with its swings in 2016. That year saw its biggest daily drop on record in the aftermath of the U.K.’s shock vote to quit the EU and a mysterious flash crash in October.

Sterling has traded in a range of 2.141 pence against the euro this month, the lowest since August 2014. The pound was at 87.39 pence per euro as of 10:27 a.m. in London.

“The actual outcome of the negotiations is still quite difficult to predict,” analysts at Credit Agricole’s corporate- and investment-banking unit, led by Valentin Marinov, the London-based head of Group-of-10 foreign-exchange strategy, wrote in a client note Friday. They said their “long-term valuation model still suggests that the best hedge against a potential hard or disorderly Brexit may be long EUR/GBP,” while the near-term outlook for sterling remains “extremely challenging.”

Measures of implied price swings in the pound against the euro over the next one and three months are close to the lowest levels since 2015. While this is in part due to the global decline in volatility, it could change should sterling closely follow negotiation headlines.

The currency’s volatility should be “much higher than what we have right now and people are a bit too complacent,” SEB’s Falkenhall said. He sees the pound weaken to around 91 pence per euro, a level not seen since October, if talks turn “unfriendly” and the “hard Brexit risk premium continues to increase.”

Options traders are more bearish on the pound than any other Group-of-10 currency over the next three months, according to risk-reversal data. The case for turning positive on the pound still alludes most market participants. Robeco Investment Solutions’ portfolio manager Jeroen Blokland said he has initiated a long position in the euro against sterling as “there is a chance Brexit could turn ugly.”

AtW
19th June 2017, 15:13
Nothing good can come out from this incompetent Govt and the next one will be Red Labour.

The_Equalizer
19th June 2017, 15:26
Nothing good can come out from this incompetent Govt and the next one will be Red Labour.

You'll change your tune if they do get in.

AtW
19th June 2017, 15:35
You'll change your tax residence if they do get in.

FTFY

The_Equalizer
19th June 2017, 15:42
FTFY

Fair point. Trouble is so will everyone else. Hello IMF.

xoggoth
19th June 2017, 19:21
Seems an informed article. Basically - "we haven't a clue"

PS I like your username Martin@AS Financial. Made me much more likely to read a thread on this subject as it seems you must know about these things. I am going to ditch my user name and sign in as xoggoth@incrediblywiseandexpertonallthings

motoukenin
20th June 2017, 09:19
Dont believe Brexit could turn ugly, where you have 2 parties that need to agree on a deal then they will get to the best outcome for both that tries to satisfy the basic principles.

Basic principle of EU is no Customs Union or single market without FOM, they have to stick with that, but they can do a new deal where UK pay something and agree to some relaxation of border controls for access.

Basic principle of UK is freedom to create own laws and immigration controls, but Govt. have not said in any detail what the controls are so also have the ability to make a deal.

As for Laws we will be taking on most of the EU laws and sticking with the vast majority, UK companies will not make goods, cars for instance, where they have one model satisfying UK law and another satisfying EU law, they will make one car that satisfies both.

BrilloPad
20th June 2017, 09:20
Dont believe Brexit could turn ugly, where you have 2 parties that need to agree on a deal then they will get to the best outcome for both that tries to satisfy the basic principles.

Basic principle of EU is no Customs Union or single market without FOM, they have to stick with that, but they can do a new deal where UK pay something and agree to some relaxation of border controls for access.

Basic principle of UK is freedom to create own laws and immigration controls, but Govt. have not said in any detail what the controls are so also have the ability to make a deal.

As for Laws we will be taking on most of the EU laws and sticking with the vast majority, UK companies will not make goods, cars for instance, where they have one model satisfying UK law and another satisfying EU law, they will make one car that satisfies both.

I disagree. I think the EU is NOT to ensure the best deal for the EU. Their only concern is to punish the UK.

The_Equalizer
20th June 2017, 09:24
I disagree. I think the EU is NOT to ensure the best deal for the EU. Their only concern is to punish the UK.

The EU are not daft enough to inflict limitless damage on themselves purely to punish the UK.

vetran
20th June 2017, 09:26
Seems an informed article. Basically - "we haven't a clue"

PS I like your username Martin@AS Financial. Made me much more likely to read a thread on this subject as it seems you must know about these things. I am going to ditch my user name and sign in as xoggoth@incrediblywiseandexpertonallthings

Oi Mod

Custom title needed!

vetran
20th June 2017, 09:28
The EU are most definitely daft enough to inflict limitless damage on themselves purely to punish the UK.

FTFY

AtW
20th June 2017, 10:24
The EU are not daft enough to inflict limitless damage on themselves purely to punish the UK.

They won't have to - they hold all the cards, it's the weak party that got no chance

grabri
20th June 2017, 10:29
The EU are not daft enough to inflict limitless damage on themselves purely to punish the UK.

They just need to sit back and watch the UK self-flagellate....

scooterscot
20th June 2017, 10:53
Against the Euro the pound dropped from 1.145 to 1.135 - Brexit talks going well then.

The_Equalizer
20th June 2017, 10:57
Against the Euro the pound dropped from 1.145 to 1.135 - Brexit talks going well then.

I think that's known at the Mark Carney effect:

Mark Carney says time not right for interest rate rise - BBC News (http://www.bbc.co.uk/news/business-40338570)