Credit: Shutterstock photoWith the UK Brexit vote sending shock waves through the forex and other markets, a question being asked is how low can the GBPUSD go as forecasts have to be adjusted to account for the new reality?
Why I am using the word shock more than surprise is that financial markets had discounted a vote for Remain and this saw the pound fall from a high just above 1.50 to a low just above 1.32, a 12% range in a matter of hours, which is mammoth by any historical perspective for a major currency. This saw GBPUSD trade to the lowest level since September 1985 before steadying as central banks were likely in the market covertly to cushion the freefall.
This sets the stage for an uncertain period ahead as the forex market looks to find new equilibrium ranges for sterling, both vs. the dollar and other currencies. This suggests increased volatility and choppy trading in a market where the Bank of England will have to decide whether to defend its currency with higher interest rates if its weakness pushes up inflation or cut rates if the economy falters as many suggest. In the “good” old days, it would likely have opted for the former to defend its currency but in the new world of slow growth/low inflation the latter seems more of a risk.
Given the success of our pre-EU referendum tracking poll, which proved on target as it showed a consistently strong bias for a Brexit result despite other polls suggesting otherwise, we are starting a new poll to track sentiment in GBPUSD. We urge you to participate as what makes our polls unique is the option (not a requirement) to express your thoughts as part of it.
Click to participate in our GBPUSD poll
I have not addressed the potential fallout on the EUR if Brexit contagion spreads to other EU countries asking for similar referendums. I will cover this in future articles.
Jay Meisler, founder
Global Traders Association
jay@tradersadvocate.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
