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Sterling Nervous Around Brexit

Published 05/23/2016, 06:21 AM
Updated 07/09/2023, 06:31 AM

If you ask me we are all a little too scared of this Brexit issue. The currency has major issues regardless of what the referendum vote is.

The general expectation is that the referendum turns up a yes vote. If we recall, it was the same thing that happened with the Scottish referendum, with everyone expecting sterling to rise if the Scots voted to stay in the union. Look where sterling is trading.

The last letter from the Bank Governor to the Chancellor really spelled out the problems in the UK. The first being low inflation and generally lack of demand, coupled with falling oil prices. Oil has a good chance of making it to $50 a barrel in the short term, so not an issue for me. The main issue is low inflation and the fact the UK still has a £375 billion asset purchasing program. This will keep sterling cool under the 1.6000 bracket even if we do get an uptake.

Now, I have been focusing a lot the yen, which continues to defy market expectations. There is no doubt in my mind that at some point this strength will be reigned back, but I really like the idea of long yen and short sterling.

You all know how much I hate losing money, so I have a few interesting plays using the good old vanilla options. I have gone for the dog that is cable, but the correlation should see cable down on the day.

Going forward I am very bullish on the yen for now. Sterling has a lot of headwinds, so I will fly with the volatility.

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