Investment Clock insights

Covering more of our sterling underweight


Trevor Greetham

4 September 2019

We covered some of our sterling underweight yesterday in our multi asset funds and bought some more this morning.
Sterling/dollar volatility dropped sharply overnight on the government defeat (see chart) and this is generally a good sign for a currency. The political picture is also slightly less negative for the pound. 
PM Boris Johnson is calling for a snap general election but his working majority is now “-43” after Conservative rebel MP expulsions and Labour’s Keir Starmer has raised the option of a confidence vote, rather than election. This could lead to a time-limited government of national unity that extends Article 50 and possibly calls a confirmatory referendum that could sort the Brexit crisis out, one way or another.
While this option gets more likely sterling is likely to recover further. We’d deepen the underweight sterling position again if volatility rises and/or a general election is successfully called. 
An election in mid-October raises the risk of a No Deal Brexit on 31 October to a very high level, either due to a hung parliament with more parliamentary gridlock, or a Conservative/Brexit Party majority. An election also raises the risk of a majority Corbyn government, which currency traders would take a dim view of given a range of market-unfriendly policies.

We covered some of our sterling underweight yesterday in our multi asset funds and bought some more this morning.

Sterling/dollar volatility dropped sharply overnight on the government defeat (see chart) and this is generally a good sign for a currency. The political picture is also slightly less negative for the pound. 

PM Boris Johnson is calling for a snap general election but his working majority is now “-43” after Conservative rebel MP expulsions and Labour’s Keir Starmer has raised the option of a confidence vote, rather than election. This could lead to a time-limited government of national unity that extends Article 50 and possibly calls a confirmatory referendum that could sort the Brexit crisis out, one way or another.

While this option gets more likely sterling is likely to recover further. We’d deepen the underweight sterling position again if volatility rises and/or a general election is successfully called. 

An election in mid-October raises the risk of a No Deal Brexit on 31 October to a very high level, either due to a hung parliament with more parliamentary gridlock, or a Conservative/Brexit Party majority. An election also raises the risk of a majority Corbyn government, which currency traders would take a dim view of given a range of market-unfriendly policies.

Source: Bloomberg as at 04/09/2019

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