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Latest #IGForexChat Reveals How Brexit Negotiations Are Affecting the Forex Markets

How close is the UK to finalising a deal with the EU? Only Theresa May and Michel Barnier truly know the answer to that.

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French noted that investment in UK assets and stocks is “waiting in the wings” to find out what those barriers will be. Pixabay

With the UK due to formally leave the European Union (EU) in less than six months, Brexit negotiations are reaching a nervous climax.  Hopes remain that the UK government will secure a deal with the EU by the end of the year, but what impact are the Brexit talks having on the forex markets? How far could the pound fall if there is no deal reached? Would the pound be affected by a vote of no-confidence within the Conservative Party and Prime Minister Theresa May being replaced?

The latest #IGForexChat outlined the potential ramifications of Brexit negotiations on forex markets. IG’s Sara Walker interviewed two leading forex experts, chief economist Simon French and market analyst Nicholas Cawley, to help forex traders understand the implications of a hard or soft exit from the EU.

If you don’t have time to watch the entire interview, here are the main talking points as to whether forex traders should buy or sell sterling in the markets in the coming months:

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May’s spokesperson said both the Prime Minister and the Brexit secretary, David Davis, said the government would be robust when the EU withdrawal bill returned to the House of Commons after completing its passage in the House of Lords. Pixabay
What will happen to the pound if we reach 31st March 2019 without a Brexit deal?

Nicholas Cawley insists that it is highly likely that the UK government will know if a Brexit deal can be reached by the end of the year. Cawley said there will undoubtedly be “clear signals” ahead of the EU’s December meeting as to whether a deal is achievable.

According to Simon French, the UK parliament will have an influential role if talks move into the New Year. French believes January will be a crucial month for parliament as the amendments within the UK’s withdrawal bill will need approval. If the majority of MPs cannot agree on the bill, they will have the right to propose a “meaningful vote”. French believes this vote could “ask the government to go back to the negotiating table” and attempt to “extend Article 50”.

French also believes it is unrealistic to expect the price of sterling to be priced on a hard Brexit “until midnight on March 29th”.

In a Tuesday radio interview International Trade Secretary Liam Fox said it was not acceptable for the unelected House of Lords to try to block the democratic will of the British people, who voted by a 52-48 margin in June, 2016 to leave the EU.
The Independent newspaper Tuesday night reported that May was preparing for a Brexit meeting with select cabinet ministers Wednesday at which they will try to come up with a joint position on post-withdrawal customs relations following rejection of Britain’s existing proposals. wikimedia commons
How far could the pound fall against USD and EUR in the event of no deal?

French pointed to historical analysis of previous peaks and troughs of sterling against the US dollar. The IMF bail-out of the UK in the 1970s and Lehman Brothers/Northern Rock in 2008 resulted in “20-25%” declines, leaving the pound in the “high teens” i.e. $1.17-$1.20 to the pound. French believes a hard Brexit is “no more material than those previous events” and, as such, the pound could experience a similar decline next March.

On the subject of whether the pound will end up in parity with the euro, Cawley was quick to dismiss those claims.

How will Brexit affect the pound during the transition period?

Cawley was quick to predict that, if an extension to the UK’s transition period after leaving the EU is agreed, “it will initially weaken sterling”. However, he suggested that an extension may prove useful to some business sectors that may need that time to “get their house in order”.

On the flip side, Simon French is “slightly more bullish” about the transition period. He believes the expected discussions about a free-trade agreement will eventually uncover “the materiality of what trade barriers will look like” between the UK and the EU. French noted that investment in UK assets and stocks is “waiting in the wings” to find out what those barriers will be. He believes that, once clarity is achieved in the “Treaty text”, it will be easier to price things correctly.

Brexit,  Image source: www.catholicherald.co.uk
Representational Image, Brexit.
Will the pound be affected by the replacement of Prime Minister Theresa May?

On the subject of the value of the pound being influenced by the departure of Theresa May as Prime Minister, Nicholas Cawley believes sterling “would take it quite well” and that the price “wouldn’t go down”.

Cawley was quick to temper that by saying it would ultimately depend on the “favourite” candidates to replace her. He said that the prospect of Boris Johnson would be “hated” by many in the markets, yet a more “progressive” candidate such as Sajid Javid would be viewed more positively.

Are further interest rate hikes likely from the Bank of England?

Nicholas Cawley believes there is “no reason to push interest rates up at the moment”, despite inflation reaching 2.4% this year. Furthermore, Cawley finds it hard to believe that the Bank of England would dare consider raising interest rates in the event of a hard Brexit.

Both Cawley and Simon French expect little to happen on the subject of interest rates until May 2019, when the Bank of England “may start giving some signals” based on the first quarterly inflation report after the UK leaves the EU on 31st March.

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Brexit (Representational IMage) Image source: The Street

Interestingly, French suggested that the Bank of England could yet consider a rate hike “as early as February” with the ECB’s rate policy seemingly rigid and President Trump reportedly wanting the Fed to “go at a slower rate”. French believes this would encourage investors to “buy into sterling”.

How close is the UK to finalising a deal with the EU? Only Theresa May and Michel Barnier truly know the answer to that. French noted that “the history of the EU negotiations” would suggest that the Brexit talks will inevitably “go down to the wire”. Whichever way the scales tip, the forex markets are sure to be a fascinating place to be in the coming months.

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Governments Around The World are Learning to Confuse Dissidents on Social Media

The researchers, who published their findings in a recent issue of Political Science Research and Methods, specifically examined social media from both the Venezuela regime and its opposition

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The regime also seemed to develop a more sophisticated approach to using hashtags on Social Media. The regime used long hashtags, as opposed to the shorter hashtags that are more commonly used, to promote distraction among the protest groups. Pixabay

Governments the world over are learning new tactics to quash dissent on various Social Media platforms, responding with tweets designed to distract and confuse like longer hashtags, according to a team of political scientists.

In a study of Twitter interactions during Venezuela’s 2014 protests, in which citizens voiced opposition to government leaders and called for improvements to their standard of living, the tweets of the protesters focused mainly on the protest itself, while the tweets issued by the ruling regime covered more diverse topics.

This could mean that regimes are growing more savvy in their use of social media to help suppress mass movements.

“When we started doing this study there had been a lot of optimism about the capacity of social media to produce revolutions throughout the world, like Arab Spring and the Color Revolutions in Europe,” said Kevin Munger, assistant professor of political science and social data analytics, Penn State.

“But it seems like, in hindsight, this was the result of short-term disequilibrium between the capacity of the masses to use this technology and the limited capacity of these elites to use it.”

A lot of these elites may have not been keeping up with modern communication technology and got caught unawares.

So, for that short period of time, social media did produce better outcomes for revolutions and mass movements.

The researchers, who published their findings in a recent issue of Political Science Research and Methods, specifically examined social media from both the Venezuela regime and its opposition.

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Governments the world over are learning new tactics to quash dissent on various Social Media platforms, responding with tweets designed to distract and confuse like longer hashtags, according to a team of political scientists. Pixabay

Following the death of Venezuelan President Hugo Chavez in early 2013, Nicolas Maduro, Chavez’s vice-president, won a special election.

After his election, mass protests erupted related to economic decline and increased crime.

In their analysis, the researchers noted that the regime abruptly shifted its Twitter strategy after protests swept across the country.

The topics of the regime’s tweets became even more diverse than usual — including such topics as a tree-planting event — and often did not address the protests at all.

As the protests continued, however, the researchers said that the opposition also became less focused, which the researchers suggest may have been a reaction to the regime’s social media strategy.

The way that attention works on social networks offers a glimpse into why the strategy to distract citizens might be effective, added Munger, who worked on the study while a doctoral student in politics at New York University.

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Regimes are growing more savvy in their use of Social Media to help suppress mass movements. Pixabay

“To have effective protests, you need to have a ton of people coordinated on a single message, so spreading other narratives disrupts that process of coordination,” said Munger.

“Being able to spread doubt is effective. You don’t have to get people to love your regime, you just need people to less convinced of the single narrative.”

ALSO READ: President of Egypt Calls for Collective Action Against Countries Supporting Terrorism

The regime also seemed to develop a more sophisticated approach to using hashtags. The regime used long hashtags, as opposed to the shorter hashtags that are more commonly used, to promote distraction among the protest groups. (IANS)