During the past few days we have received multiple requests about how to trade GBP after Brexit. Meanwhile, this week the question is a little different, why does GBP appreicate this week?
To answer these two questions we must look into the fundamentals first. Why is it that GBP depreciated initially? And the answer is very simple and lies within one simple word – INSTABILITY.
As the Brexit fear hit the market, financial markets started to collapse since markets are not really getting along with instability. This crisis grew even bigger when the British PM David Cameron resigned and the country went into literal political chaos. However there has been changes during the past couple of days, which is shifting the wind in the markets from Instability to Stability.
This week markets sense some kind of stability in the market as the British Government is moving forward with Theresa May as the next probable British Prime Minister as a successor to David Cameron. Despite the fact that Mrs. May is a Brexit supporter, Financial markets participants see her more like a catalyst at the moment.
Meanwhile, following the Theresa May news from yesterday today the markets had another STABILITY related catalyst but this time from the BOE Governor Carney commenting the following:
“We have the tools to meet our responsibilities for both monetary and financial stability.”
To a plane eye these words would probably mean nothing, however for Financial markets these words signify Stability as the BOE vouches to keep up with the markets and support it with the necessary liquidity and stimulus.
To sum it up if you are wondering about how to trade GBP after Brexit vote and during the Brexit negotiations, you can simply look for verbal perceptions. INSTABILITY means BEARISH GBP meanwhile STABILITY means BULLISH GBP.
Besides the BOE announcements and Theresa May news and of course the news coming from the EU regarding article 50 and other relevant subjects, the biggest instability will be created by any kind of dissatisfaction from Ireland and Wales. If any part of the Great Britain will push for a referendum to break free from the GB we would be seeing the GBP depreciating and EURO appreciating.