Tags: Brexit | british | pound | brexit | investors

British Pound Still Risky on Brexit Uncertainty

British Pound Still Risky on Brexit Uncertainty
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Friday, 24 May 2019 07:56 AM Current | Bio | Archive

UK Prime Minister Theresa May, who is after Margaret Thatcher, who was UK Prime Minister from 1979 to 1990, the second but certainly not the last female Prime Minister of the United Kingdom (UK), has today announced her decision to step down after her latest efforts for a Brexit deal have failed.

The British pound, which has lost almost 4 percent of its value over the past 3 weeks against the dollar and the euro as well as other strong currencies, remains further under pressure.

Now, investors who are inclined to take on some limited risk could do well, from here on, to think about a few scenarios that could play out for the British pound:

With UK Prime Minister Theresa May confirming today she will step down on June 7, we have a situation whereby a “No Deal” Brexit is back on the table, because the Conservative Party appears to be leaning towards a pro-Brexit replacement for Mrs. Theresa May with the former Foreign Secretary Boris Johnson who is currently leading the Conservative’s candidates list.

Now, the temptation to support a leader who has expressed the willingness to consider a “No Deal” Brexit could be strengthened by the strong public support for the newly founded “Brexit Party”.

Investors could well keeping in mind that under a “No Deal” Brexit scenario the British pound could go as low as $1.15 against the dollar, and then the outcome of the Brexit UK economy would be fairly well reflected in that price.  

That said, from here on we could also get a further delay of Brexit as a whole because the UK, under a new Prime Minister, will have to work out what’s finally going to do and then, under such a scenario, we could see the British pound to trade within a range of around $1.28 to $1.34 versus the dollar.

Of course we could get some intermittent rallies of the British pound because, or the overall news gets better, or the news gets worse during that period.

One advice is for sure that during that period, investors who want to take on some British pounds as an investment, it will be better being prepared for not losing their nerves quickly.

Finally, over the somewhat longer term, we could also end up with a continued commitment from the UK for staying “In” the European Union (EU) and under such a scenario we could also move towards a new “Referendum”. Right now, when people in the UK are polled for referendums, we see a slight preference for remaining in the EU instead of leaving the EU.  Of course, if that would be the case over the somewhat longer term, then we could see the British pound move back closer to purchasing power parity (PPP) which today we can estimate at around $1.58 to the dollar.

All this means for investors who are inclined to take on some limited risk that the British pound is getting attractive versus the dollar but also versus the euro and other stable currencies for investment if the worst case scenario of a “No Deal” Brexit doesn’t happen.

Nevertheless, it must be said that with what we know today, we can’t take further weakness of the British pound off the table because we can’t take a “Hard” Brexit off the table.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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All this means for investors who are inclined to take on some limited risk that the British pound is getting attractive versus the dollar but also versus the euro and other stable currencies for investment if the worst case scenario of a “No Deal” Brexit doesn’t happen.
british, pound, brexit, investors
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2019-56-24
Friday, 24 May 2019 07:56 AM
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