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Cable rallies as UK Government loses credibility

26/02/2019

Cable (GBPUSD) broke above 1.3200 today, a level it last saw on January 28th, when it promptly declined to below 1.2800. Some commentators are attributing this rally to the possibility that Brexit might be delayed, but why this would be seen as positive news is less clear, given that it confirms that the UK Government has broken its contract with the people, is no longer in control if its destiny and is a very public acknowledgement that they’ve wasted a thousand days since the Referendum on EU membership and have nothing of any substance to show for it apart from a woeful Withdrawal Agreement which has been roundly condemned by both sides of the argument. Such events seem the very antithesis of sound investment policy. If this is the reason for the rally, and not the (scheduled) statements from Bank of England Governor Mark Carney this morning, then Sterling is on very shaky ground indeed. We do not feel the market has an obvious bias with regards to current positioning, believing that it is largely square, but going forward we feel that the downside is limited.  However, we’d be bullish for Sterling only in the event that some sort of decision is made, but a step towards banana republicanism is hardly what we’d want to see.

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