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A case for GBP bulls

HYCM

By Giles Coghlan, Chief Currency Analyst at HYCM

Brexit 2020, different to Brexit 2016?

A piece on Bloomberg’s markets live blog has recently been released suggesting that Brexit 2020 may be a disappointment. The article reminded the reader that Brexit in 2016 was a shock and resulted in sudden GBP re-pricing. Hardly anyone saw it coming and when it happened the GBP fell suddenly lower. However, this time, it is a different scenario. This is because markets have had the last three+ years of pricing in the GBP’s new rate.

Background role for the UK?

While Europe has been unifying its fiscal and monetary policy to support the whole bloc the UK has been facing not only COVID-19 slowdowns but also the Brexit pricing. The UK and its assets have seen global repricing as the UK is re-evaluated as a medium-sized nation with a highly uncertain trade outlook with its largest trading partner, the EU. Investors have been downgrading the UK’s prospects and you can see that in the falling value of the GBP. It is easy to forget with so many headlines crossing the news feeds that a number of companies are still planning on removing their Headquarters from London.

Is there an upside for the GBP?


So, all of this means that a lot of the ‘bad news’ about Brexit may well be priced in. Although the GBP would be expected to fall lower on a no-deal Brexit in a knee jerk fashion it may well be that the GBP’s downside will be limited. This means that yes, the risk of further downside is still in play as long as a ‘no-deal’ is still a possibility. However, for traders taking a longer-term approach with a 2-3 year timeframe then the outlook looks firmer for the GBP the longer the outlook. This may mean that the GBP has a limited downside to go from these levels. Any positive Brexit news which suggests a deal is on the cards will send the GBP higher.

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