UK: Pound Brexit squeeze may also fade soon - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the pound has advanced by close to 4% versus the dollar from Monday’s low as the political vacuum at the helm of government is filled much more quickly than expected.

Key Quotes

“Theresa May will become PM later today and we have no doubt that her early primary objective will be to convince UK voters that “Brexit means Brexit”. Her support for ‘Remain’ in the referendum leaves her vulnerable to accusations that her desire is to go slow and delay invoking Article 50. If we are correct and her early objective will be to counter that, we may well hear noises from senior political figures over the coming days that a May administration will be determined to invoke Article 50 as early as possible. A new Brexit department will be created with a Secretary of State position – no doubt a position that will be filled by a prominent ‘Leave’ campaigner.

So just like the possibility that the move higher in USD/JPY might fade soon, so too might the rebound of the pound. The BOE is set to ease monetary policy tomorrow and while that is fully discounted in FX, the other issues of concern in relation to Brexit have not gone away. Crucially, we still really do not know the extent of the hit to the real economy. Tonight, we will get some sense of the hit to the housing market from the RICS Housing report for June – this perhaps won’t capture the full extent of the Brexit shock but the report may well be a warning of what’s to come over the coming months.”