Brexit and the Pound | Calamatta Cuschieri

Many will recall the crash of the British currency in the aftermath of the Brexit vote. Investors sold the pound sterling on fears – which eventually materialised – of future monetary stimulus needed to sustain the economy during the impending turmoil.

Indeed the selloff has been pronounced up to a few weeks ago, after a ruling by the High Court stated that the UK government could not unilaterally trigger the infamous Article 50 without first consulting Parliament. The ruling – which the government has appealed – gave hope to many that the UK would avoid a so-called ‘hard’ Brexit, characterised by a hard-line stance on immigration and a subsequent loss of access to the EU Single Market.

The issue is now being debated in the Supreme Court with a ruling expected early next year. The market is confident the Supreme Court will echo the ruling made by the High Court, pushing the sterling to a 2-month high against the US dollar in the process. It hit its strongest level since late July against the Euro, which means you’re probably going to pay a bit more (but not too much, seriously) for your purchases from Amazon UK. 

ECB In Focus

Things were a bit different on the continent, as the Euro slipped slightly from 3-week highs against the US dollar as Thursday’s ECB meeting comes into focus.

The meeting comes only a few days after Italy’s Prime Minister Matteo Renzi resigned over a referendum-turned-confidence vote. The outcome was somewhat expected – the polls got it right this time round – so the negative impact on the euro was rather muted. Indeed it retraced higher to almost $1.08 on Monday.

Expectations are for the ECB to extend its current asset purchase program (something ECB President Mario Draghi has been saying ad nauseam, so what’s the news there?). In the meantime, inflation – or HICP for the Europhiles – has hit its highest level since April 2014. Inflation is the ECB’s main policy target and while levels are still somewhat far from the ECB’s target of “close, but below 2%” it’s not entirely unreasonable to assume the ECB is not very willing to add on even more stimulus at this point.

Unemployment in the EU is also moving in similar fashion – while still at relatively high levels (9.8% in October) the jobless rate hit a 7-year low. Dovish Draghi? I’ll be contrarian.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investments Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.