Yesterday’s GBP rebound triggered by hopes the UK economy may not suffer full ‘Brexit blues’ as government stability returns with the steady hand of incoming PM Theresa May has helped the JPY to weaken too as GBP has been an important carry vehicle of Japan based retail investors.
However, we think the GBP rally will run out of steam once investors learn that the economy is likely to slow down from the investment side, weakening employment and then finally consumption. Yesterday’s upbeat headlines suggesting strong post Brexit retail demand provided the excuse for a sharp GBP short-covering rally, but the trend remains down. Note that we believe it is too early to make consumption related judgements from so few data points.
The chart below shows that previous episodes of GBP weakness developed similar patterns compared to yesterday’s move but did not indicate a trend reversal.
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Yesterday’s GBP rebound triggered by hopes the UK economy may not suffer full ‘Brexit blues’ as government stability returns with the steady hand of incoming PM Theresa May has helped the JPY to weaken too as GBP has been an important carry vehicle of Japan based retail investors.
However, we think the GBP rally will run out of steam once investors learn that the economy is likely to slow down from the investment side, weakening employment and then finally consumption. Yesterday’s upbeat headlines suggesting strong post Brexit retail demand provided the excuse for a sharp GBP short-covering rally, but the trend remains down. Note that we believe it is too early to make consumption related judgements from so few data points.
The chart below shows that previous episodes of GBP weakness developed similar patterns compared to yesterday’s move but did not indicate a trend reversal.
source