Fundamental Forecast for GBP: Neutral
- Trading GBP/USD and GBP-Pairs Less than a Month to Brexit
- The British Pound Rose as BOE Officials Defend Brexit Outlook
We are now less than four weeks from the vote waited upon around-the-world; and that is the decision that UK voters will tackle on June 23rd that will decide the fate of the continued EU-membership for the United Kingdom. Most of the sources that have went on record to discuss the ramifications of this upcoming vote have universally panned the idea of the UK leaving the EU. This includes multiple Bank of England members, with a huge warning coming from the BoE Governor Mark Carney less than a month ago at the most recent Super Thursday batch of announcements.
At that meeting, Mr. Carney said that while unsure of the exact repercussions should voters elect to leave the EU, it would likely entail higher unemployment, higher inflation, lower growth and a sharp decline in the value of the British Pound. And this devaluation in the British Pound may only add even more inflationary pressure to the UK economy, which would put the bank in the unenviable position of having to decide to mold policy towards tempering inflation (which would entail higher rates, which would bring even slower growth) or boosting growth (which would lead to even greater inflation, and an even weaker GBP). Unfortunately the bank wouldn’t be able to tackle both at the same time as each scenario presents a diametrically opposing set of risks and potential outcomes.
Nonetheless, the confidence with which these warnings have been delivered has seemed to resonate across capital markets, as the past three months have seen a rather remarkable turnaround in the spot rate of GBP-pairs while the debate behind ‘Brexit’ has raged on. As we entered March, doom and gloom appeared to be on the horizon as GBP/USD sank to a fresh seven-year low, trading at levels that hadn’t been seen since the Financial Collapse. But over the past three months GBP has clawed back all of those losses and then some; and more recently, as in over the last couple of weeks, the British Pound has been one of the strongest currencies in the world.
