British Prime Minister Theresa May’s inability to pass her BREXIT withdrawal agreement in Parliament has opened a Pandora’s Box. The scale of defeat (202 – 432), in which her own party members voted against her, has completely surprised the markets and created a pandemonium. Various alternatives are doing the rounds – second BREXIT referendum, No-BREXIT, May’s not completely lost on her BREXIT plan yet, etc.
In this chaos, one thing is certain; No-BREXIT has certainly come up as a viable alternative (something that was not thought of at all a few days back). How will GBPUSD (and EURUSD) react to such adjustments is something to ponder about?
All of us can recall the market reaction when BREXIT was announced on 24 Jun 2016 – Pound collapsed from 1.50 to 1.32 – a whopping 12% in a single day. It plummeted a further 7.5% in Sept-Oct 2016. In a ripple effect, euro declined throughout the year 2016 (post BREXIT) – loosing 9%.
Thinking aloud, now since no-BREXIT is a probable alternative; what could be the market reaction of Pound and Euro if BREXIT doesn’t happen at all? Moreover, the noise around second BREXIT referendum is getting louder – if that does happen (am not indicating it will happen); there are far greater chances of BREMAIN than BREXIT. Am sure, one can visualize how Pound and Euro will react if BREMAIN turns out to be the final outcome. Surely, exciting times ahead.
Currency risk managers should take note of the fast changing developments and adjust their hedging strategies accordingly.
Pound and Euro exporters (who were keeping high hedged ratios) – BE AWARE.
Importers who were keeping their positions largely unhedged – BE AWARE TOO.