Brexit or how I'll make a killing in forex

I'm streaming the BBC coverage. Could be the worst showing for Labor since 1935. Wow.

 

On an absolute basis, the pound has lost a ton of value decade after decade and has continued to lose value right through Brexit. It sometimes helps to take a longer-term look. We are really just seeing more of the same still -- a decades long trend.

When people make statements like the one you did, I know they are looking at the currency's value relative to something else, and usually on a fairly short-term basis. But all we have left anymore are dog shit currencies whose values are being destroyed in absolute terms. Saying the pound strengthened today against the US dollar (if that was what you meant) is like comparing dog poop to cat poop. If you are simply trading the currencies, that doesn't matter, obviously. But if you are talking about the purchasing power of the currencies (what should matter to the citizens of each of the countries), there are only losers in the world now.

That said, yes, the value of the British pound relative to the US dollar has declined since Brexit came into view. But that decline has been happening since the 1950s at least -- the pound has lost a ridiculous amount of its value as Britain has really declined.

On a much shorter term basis, the pound hit a bottom relative to USD at the beginning of September, and has been rising steadily since. So put today into that context, and it is really continuation. It correlates more with what Jay Powell and the US Federal Reserve have been doing, particularly their REPO operations in the wake of the funding crisis in September, when they started buying up billions upon billions of dollars of treasury bills every day to monetize yet more debt, and in a stealth way (although markets for risk assets have noticed -- the booze has been flowing into the punch bowl again) started to expand their balance sheet again. The dollar relative to a basket of other currencies, peaked not soon after that and has been steadily coming down over the last couple of months, helped along on Wednesday when Jay Powell basically signalled no rate hikes for at least the next year, and possible note purchases in addition to bills, if he thinks it's necessary to stem a further short-term funding crisis. It's dollar down, nearly every currency relative to it up, including GBP.

What you are seeing in the pound / dollar relationship is impacted by Brexit today obviously, but putting aside some hourly moves, it is being way more impacted by central bankers -- ie -- who is devlauing their currency the most aggresively, and the US has stepped back into the game aggresively after the BS about normalizing, and their failed attempt late last year, when they realized they can't do it without popping the bubbles they have blown in risk assets, which they are hostage to.

On the Brexit front, at this point, the uncertainty and potential chaos of a disorderly exit was a contributor for the pound to stay weak, all things being equal. The election introduced 1) certainty and clarity (which markets prefer), and 2) made it more likely that there is a negotiated agreement (with one party controlling everything now) instead of a more messy no deal exit. So whatever algorithms may have traded the news, they were actually trading a narrative that made sense for once, but really that is just because it fit into the current price action.

Whatever happens next with that curency pairing, 1) That was a very extreme gap up and on a relative strength basis, the pound is very, very overbought now, so it could come back before making its next move one way or the other. 2) The ONLY thing that matters for that pairing in the grand scheme is what Mark Carney and Jay Powell do next. If Powell and the Fed shit more on the dollar next year than Carney and the BOE shit on the pound, the pound will continue to appreciate relative to the dollar. If the opposite happens, the price action will reverse.