Aug 29, 2019

British pound doesn't flinch ahead of possible no-deal Brexit

Dion Rabouin, author of Markets
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Data: Investing.com; Chart: Axios Visuals

U.K. Prime Minister Boris Johnson got his request to shut down Parliament for several weeks approved by Queen Elizabeth II, leaving less time to avoid a "no deal" Brexit. But investors don't appear overly concerned — at least for now.

By the numbers: The British pound fell by as much as 1.1% against the U.S. dollar on the news, but ended the day just over half a percent lower.

  • Equities were unbothered, as the S&P 500 rose 0.65% on the day and Britain's internationally focused FTSE 100 finished up slightly, while the domestically focused FTSE 250 was marginally down.

What they're saying: "The dip in the currency is in line with normal Brexit volatility," Dec Mullarkey, managing director at asset manager SLC Management, says in an email.

  • "This implies that while the move pinches Parliament's efforts to constrain Johnson, it doesn’t significantly raise the probability of a no-deal Brexit," he adds.

Be smart: The pound weakened after Johnson's proposal but remains comfortably above its lows from earlier in August when it fell to the lowest versus the dollar since early 1985. By the pound not retesting those levels shows the move is more political wrangling than genuine threat, Mullarkey says.

Two more insights per Mullarkey:

  • "If markets felt that Johnson’s gambit was going to result in a crash out of the EU, equity markets would be revolting as they price in severe growth setbacks."
  • "Right now they are taking it in stride assuming that Parliament can offset Johnson’s gamesmanship."

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