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Instability Builds Confidence with GBP Bears

GBP Theresa May
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January 30, 2017 By: , No Comments

The ‘Economics of Politics’ or the ‘Politics of Economics’: The GBP Tells the Story

On the face of it, there’s not much optimism when it comes to the GBP/USD pair. The beleaguered sterling hit a 31-year low against the greenback shortly after the June 23 Brexit referendum. Fast-forward to Monday, 30 January 2017, and the GBP/USD pair was trading at 1.2558. The sterling has made some notable gains against the greenback since dropping to a low of 1.2040 on Martin Luther King Junior Day (January 16, 2017). It has gained approximately $0.05 and the trend is short-term bullish. However, it is the upcoming interest rate decision of the Fed FOMC on Wednesday, 1 February 2017 that will give further clarification about the USD, and the GBP/USD pair. Much the same is true of the Bank of England decision which is expected to be announced on Thursday, 2 February 2017 at 12 PM GMT.

 

The interest rate in the UK is currently 0.25% and the BOE (Bank of England) will likely continue its asset purchases valued at £435 billion. The UK will also announce its Bank of England inflation report at 12:30 PM GMT when Mark Carney of the BOE will speak at the Inflation Report Press Conference. Tremendous hoopla has made its way around markets after Prime Minister May met with President Donald Trump. The US president has signed a series of executive orders that have aroused the wrath of millions of people in the US and abroad. Foremost among the executive orders is the president’s ban on refugees from predominantly Muslim countries. May was forced to walk back her praise of Trump, and criticize the new immigration orders. Naturally, frosty relations or discord between two of the world’s staunchest allies does nothing good for the GBP.

 

UK Supreme Court Decision Impacts GBP Strongly

Recently, the UK Supreme Court ruled that Parliament had to be consulted before Prime Minister Theresa May invokes Article 50 of the Lisbon Treaty. The net effect of this ruling on the GBP should have been positive in that it would have slowed down the Brexit process, but it accelerated the pound’s decline. Spread bettors who went short on the GBP in major currency pairs like the GBP/USD, GBP/EUR, or GBP/JPY profited handsomely off this. However, the widespread geopolitical uncertainty currently prevailing in markets is not limited to the Supreme Court decision. Donald Trump’s executive orders are creating mayhem in social circles, and political relationships with the US. Fortunately for spread betting enterprises, this volatility is good for business. Increased volatility brings with it the possibility of big winnings for punters, but it also opens the door to equally large losses. In the UK, government has decided to step in to tighten the screws on the spread betting industry.

 

FCA Turning the Screws on Spread Betting Industry

With spread betting, leverage can work for and against traders, and it is this susceptibility to losses that has the UK government up in arms. For the most part, the FCA (Financial Conduct Authority) has implemented sensible rules to limit liability for clients. Now, major spread betting corporations are offering limited liability accounts for punters by removing the margin and leverage options. Spread betting enterprises are now working hard to improve their image as responsible trading entities. To this end, UK spread betting firms are also adding conventional trading services and managed investment services to their range of products. CFDs remain a popular option, but they are subject to stringent regulations. We are likely to see a move towards the inclusion of conventional financial services offerings with CFD trading companies in the UK.

 

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.

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