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Pound Traders Facing Months of Volatility Ahead of Brexit

British pound volatility left investors and political experts puzzled last week, after E.U. Chief Negotiator Michel Barnier’s promise of an “unprecedented partnership” with the U.K. gave Sterling a one percent boost in the markets.

And with the U.K. and Europe fast approaching a no-deal Brexit, investors will become more and more sensitive the statements like this one from Barnier.

Mike Amey, MD at Pacific Investment Management said, “What is quite hard for markets to work out is how much of this is political noise and how much of it is genuinely moving the probability of no deal”.

Although investors are optimistic of an agreement being struck before the U.K leaves the European Union in March next year, the painfully slow pace of negotiations has weighed heavily on the British currency, prompting U.K. Brexit Secretary Dominic Raab to admit that the existing deadline to reach a deal – October 2018 – may have to be extended.

Brexit Timetable

  • September 4th: The U.K. Parliament returns from recess.
  • September 30th to October 3rd: Party Conference (Theresa May’s ruling Conservative Party)
  • October 17th and 18th: Original deadline for Brexit outline to be completed.
  • October 31st: Original deadline for Brexit negotiations to end.
  • November (date unconfirmed at this time): Emergency summit meeting in the event of a no-deal Brexit.
  • December 13th and 14th: European Summit meeting of the EU Council.
  • March 29th 2019: Brexit.

Conservative Party Conference

Although the mass resignations and talk of leadership challenges have largely fallen away, many senior members of the U.K.’s ruling party remain in firm opposition to May’s negotiating position.

According to Investec Asset Management’s Portfolio Manager Russell Silberston, “People get bearish ahead of party conference season”.

E.U. Summit

Of all the events listed above, the key one is the emergency E.U. summit meeting pencilled in for November. This meeting will be the last opportunity to thrash out a deal in order to have it ratified before March.

Deal or No Deal?

Should the U.K. and the European Union manage to strike a deal before the end of the year, the pound could rally, however many investors see a no-deal Brexit having a greater (albeit negative) impact on the currency.

According to Investec’s Silberston, a no-deal will lead to a “quick re-pricing, just as we saw in June 2016”, when the pound dropped over 8% against the greenback when the Brexit referendum result was announced.

Amid all of this prolonged uncertainty, many fund managers are remaining cautious. Insight Investment’s Paul Lambert said of the stalled Brexit talks, “It’s very hard to invest when you have no more insight than anyone else regarding how the negotiation turns out. You could guess, and you might be right, but it would be little more than a guess.”

This article is for educational and informative purposes only and should not be considered as investment or trading advice.