GBP And Other UK Assets Shrug Off Leaked Brexit Document
GBP Talking Points:
- GBPUSD was broadly higher Tuesday despite a leaked Brexit analysis suggesting the UK economy will be weaker as a result of leaving the EU.
- The lack of response implies that Brexit has now taken a back seat to other influences when looking at how to trade UK assets.
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GBPUSD edged ahead Tuesday despite the publication of a leaked analysis that argued the UK economy will be worse off after Brexit under three possible scenarios: leaving the EU with a free-trade deal, with single-market access or with no deal at all.
As the Bank of England prepares to tighten monetary policy further, the clear implication is that the Pound, London stocks and UK government bonds are all now more focused on UK interest rates than they are on the tortuous Brexit negotiations.
GBPUSD Price Chart, Five-Minute Timeframe (January 30, 2018)
UK stocks and bonds
In the stock market, the FTSE 100 index of leading London-listed shares was down almost 1% by mid-afternoon but that was only a marginally larger drop than those seen in Germany and France. The yield on the benchmark 10-year UK government bond was higher, but by only around half a basis point. EURGBP weakened from the day’s highs.
While this could be because little credence was put on the report, it is more likely because Brexit is no longer a major market influence. Similarly, continuing talk of the political problems facing UK Prime Minister Theresa May seems to have been largely ignored – suggesting that too is now fully priced in to UK assets.
The Brexit report
The report, entitled EU Exit Analysis – Cross Whitehall Briefing, was leaked to BuzzFeed and was described by the Prime Minister’s spokesman as a “partial” work completed by the Brexit ministry. There was immediate talk of a cover up but pro-Brexit campaigners dismissed it as scare-mongering. They have described similar forecasts by anti-Brexit campaigners as “Project Fear”.
Nonetheless, such a report would undoubtedly have prompted a strong market reaction just a few months ago. Instead, there was considerably more focus on comments by Bank of England Governor Mark Carney, who was explaining the UK economy’s outperformance compared with the Bank’s August 2016 forecasts to members of the UK House of Lords.
--- Written by Martin Essex, Analyst and Editor
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