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Sterling shows signs of positivity

31/10/2018

Now that we’ve had a little longer to digest the fuller implications UK Budget, the markets are starting to reflect on the negativity of their response in relation to Sterling (GBP) and wonder if it wasn’t a little overdone. The art of the political budget is no different in the UK than in any other democratic Government, it’s really little more than giving the voters a post-dated cheque with one hand whilst simultaneously extracting the contents of their wallets with the other whilst all the time hoping they won’t notice what you’ve done until after the next voting opportunity has passed. Sterling has shown a little pick-up today against most Majors, but this should be more pronounced against the Euro. Whilst we understand that there is a certain amount of uncertainty regarding Sterling, it doesn’t make much sense to sell it in favour of the Euro, whose problems are vast and seemingly only lessened by printing more money, a strategy that simply cannot continue indefinitely. Overall, we believe the UK has little to fear from Brexit apart from being tied in to a punitive deal by the Government, a strategy that would cast the current ruling Party into the wilderness for a generation. All that being said, EURGBP is in a definite downtrend at the moment, but we believe this is the time to start building a long position as there is value at these levels. A Conservative leadership change (some unsubstantiated gossip suggests in as little as two weeks) would initially throw GBP off balance, but replacing Mrs May with a dynamic personality would be a solid boost for Sterling.

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