Sterling could certainly tank, but it won’t be due to Brexit

Matt Clinch
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Sterling Rates To Fluctuate During Brexit Negotiations
Source: Getty

Surely here’s only one way the British pound can trade in the coming months.

Currency experts are anxiously fixated on what the final details for Brexit will look like. But it seems simple to me: if it’s good, it’s good – and if it’s bad, the country will soon make it better.

What does this mean? If we do get a deal from Theresa May and most of the UK and parliament approves, it will end years of worry and uncertainty. Therefore sterling rises.

If it’s bad, or it looks like we’ll crash out of the EU without a deal, then politics will once again move swiftly to balance the ship.

Parliament won’t vote for it, May could get thrown out, we get a new leader, or we head to another General Election. Sure, there might be a rocky period for the pound, but all of this ultimately raises the chances of another Brexit referendum.

This is again another sterling positive, according to many experts, especially if it reverses the 2016 vote.

Simon Derrick at BNY Mellon said in a research note last week that “positioning and pricing data suggest that while investors remain cautiously positioned towards the pound, quite a lot of the stresses that were apparent in the summer have dissipated”.

Indeed, his analysis sorts through all the possible outcomes and gives a very low probability for a sudden change in sentiment.

Instead, it seems as if those in the City of London are more worried about a situation that’s only indirectly linked to the current Brexit impasse: namely, the left-leaning Labour party gaining power in any snap vote.

Known for being an out-an-out socialist – towards the far left of his party – Jeremy Corbyn has quashed any rebellion from Labour moderates and performed better than expected at the last election.

He’s also riled those in the City of London, with his henchmen accusing traders of plotting to sink the pound if he’s elected.

Jane Foley, a foreign exchange strategist at Rabobank, told CNBC that the pound’s future is looking fairly solid “apart from the fact that a far-left Labour government would be a negative”.

Jeremy Stretch, head of G-10 foreign exchange strategy at CIBC Capital Markets, agrees – adding that another election, set against the “threat of Corbyn economic policies”, would not play positively for sterling.

The latest political polling from research firm Opinium puts Labour and the ruling Conservatives neck-and-neck with 39 per cent each.

So, the pound could certainly fall again, but it doesn’t seem like Brexit would be what pushes it over the edge.

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