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Sterling punished

12/03/2019

Cable (GBPUSD) has rather inevitably suffered the backlash from UK PM Theresa May’s return from Brussels with exactly the same dog of a deal she went there with, except this time it is bearing a label that says “this is not a dog”. She has wedded herself inextricably to this deal, and after the last massive rejection from Parliament most other political leaders would have resigned. Cable fell from a high of 1.3245 down to a shade above 1.30. Market wisdom seems to be coming down very firmly that any Remain-type policy, such as that being championed by Mrs May, is good for Sterling, and that a failure to push it through would necessarily be negative.  It’s difficult to see the logic in that but the way to make profits in financial markets isn’t by fighting the trends. You might not like the direction the FX train is taking, but standing in front of it is never going to have a good ending. Having said that it is worth remembering what happened to the Yen in late 1988/early 1989. The Japanese Emperor was in poor health and USDJPY suffered several crashes as repeated rumours of his death swept the market. On January 7th, 1989, an official announcement confirmed his death, but instead of crashing (as it had every time previously), the market rallied strongly. Overall we remain of the view that the British Pound retains good value the closer it gets to 1.30 and whatever the outcome, that Sterling is a longer-term buy at these levels.

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