Entering text into the input field will update the search result below

Outlook Now Bearish As The British Pound Falters

May 08, 2018 10:45 AM ETFXB, GBPS, GBB-OLD1 Comment
MarketsNow profile picture
MarketsNow
169 Followers

Summary

  • Customs union issue means renewed political risks relating to Theresa May's government.
  • As Eurozone growth looks set to slow sharply, UK not far behind.
  • Falling expectations for a rate hike means that big speculator long positions now trapped.

In our previous analysis on the pound, we claimed that the number of catalysts driving the currency’s bullish trend were running out. At the time, we warned that the rally was running out of momentum, but did not see any evidence that would suggest adopting a bearish stance. Following recent weakness in the British pound, we downgraded our longer-term outlook on the currency to bearish on April 27. Beyond a significant deterioration in price, the recent fall in the currency has been accompanied by accelerating trading volumes and rising volatility. These are all signs that bears are selling the currency with high conviction.

While the pound is currently looking oversold and due for a short-term rebound, the longer-term picture is bleak. Specifically, we expect the pound to continue weakening thanks to renewed political uncertainties regarding the Brexit process, slowing economic growth across Europe, and falling expectations for another rate hike this year.

Theresa May’s government has few ways to win, many ways to lose

In an observation of the Brexit process published a few months ago, we contended that the dynamics of the negotiation meant that Theresa May was destined to concede on many of the EU’s demands. Between her objective to deliver a “smooth and orderly” Brexit and Parliament’s final say on the terms, the Prime Minister’s hands are fairly tied. In recent days, May’s government has struggled to find a solution to the customs union issue.

Looking at the EU, the organization has rejected British proposals to avoid joining a customs union. Theresa May first pitched the idea of a “customs partnership”, whereby the UK would collect tariffs on EU goods entering the UK, but destined for other member states. This was seen as too complicated. The other proposal, “maximum facilitation”, would keep the UK outside the customs union but would involve a hard border with Ireland. This

This article was written by

MarketsNow profile picture
169 Followers
MarketsNow was founded to provide a high quality, yet easy-to-use, source for financial market analysis. While there is no shortage of media companies that cover financial news in general, few can explain how developments in financial markets are relevant for the things that people care about. MarketsNow aims to answer such questions in a way that better conveys the story behind what is driving the markets, and what’s next. High-quality financial content is both limited and hard to find, and MarketsNow aims to change the status quo. By empowering you with the best information, we aim to help you make better decisions.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Related Stocks

SymbolLast Price% Chg
FXB--
Invesco CurrencyShares® British Pound Sterling Trust ETF
GBPS--
iShares British Pound ETF
GBB-OLD--
iPath GBP/USD Exchange Rate ETN

Related Analysis