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Continued Brexit Fears to Push The British Pound Lower

By:
David Frank
Published: Oct 5, 2016, 07:08 UTC

The looming Brexit, especially when the United Kingdom enacts Article 50, is a known risk to Forex traders. However, we do not yet know the affect it will

Pound Weakens amid Brexit

The looming Brexit, especially when the United Kingdom enacts Article 50, is a known risk to Forex traders. However, we do not yet know the affect it will totally have on the British economy, financial system and its assets until it is all finished. Even after the massive selloff of the British Pound after the June 23rd vote to leave the Eurozone, there is still uncertainty regarding its path. Taking this uncertainty in, we saw reactions from the GBP/USD and the EUR/GBP that mirrored that previous selloff when British officials updated us on the timetable for the official divorce. Prime Minister Theresa May recently announced that Article 50 will be triggered by March of 2017. She also said that immigration will be prioritized over any access towards the single market. Phillip Hammond, Chancellor of the Exchequer, commented the British economy will be in for a “period of turbulence.” These comments were enough to push the British Pound lower throughout its Forex trading partners. Still, this is not a clear signal of a renewed bearish trend.

There has to be clear cut motivation for the EUR/GBP Forex market to break through 0.87 or strong leverage of the GBP/USD Forex market to make a meaningful correction from 1.28. Forex traders need to be on the lookout for broader catalysts that will be able to significantly sway these markets. There is upcoming data from the United Kingdom that will show some insight into key aspects of their economy. However, it does not mean the UK will have a weaker platform to negotiate through Article 50. The International Monetary Fund’s (IMF) World Economic report provide analysts and traders with a more in depth bearing on the economic situation into the United Kingdom. This is a broad economic assessment, the WEO that will be followed by the IMF global fiscal and financial projections. This report helps Forex traders to get a bearing on the Pound. Traders should also note Federal Reserve timing to another rate hike, as well as China will add to risk in the Forex markets over the next several trading days.

There is also a state of complacency in the global financial markets.  Should this complacency be lifted, will be a welcomed relief to traders in general. Should the markets start committing to developments in trend, global benchmarks like the S&P 500 will start to move.

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