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What Impact Did the Brexit Referendum Have on Spread Betting Clients?

Brexit and Spread Betting
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July 11, 2016 By: , No Comments

Is the UK on a Knife-Edge or in a Happy Place?

Post-Brexit, the UK finds itself in a precariously balanced situation. The sterling has endured tremendous upheaval, plunging to a 31-year low against the greenback with further depreciation expected. The currency was last trading at 1.2935, down 0.1300% or $0.0016. For spread betting companies, the outcome of the Brexit referendum came as quite a surprise.
Many clients believed that the vote would ultimately be a remain vote, and as a result they went long on the GBP/USD currency pair. That would have been the case had the UK voted to remain part of the European Union. The shock effect of a leave vote immediately plunged the GBP into chaos, and that’s precisely where it remains to this day.

 
The correlation between the performance of the GBP and the FTSE 100 index is an entirely different ballgame. The FTSE 100 index has actually rallied while the GBP has moved in the opposite direction. The reason for the ‘strange’ relationship between the FTSE 100 index and the GBP is related to the exchange rate phenomenon. As the sterling depreciates, so foreign earnings of companies listed on the FTSE 100 index are worth more in GBP when they are repatriated or converted. The shock effect of a Brexit sent the FTSE 100 index plunging beneath the 6,300 support level, and then lower yet beneath the 6,000 level. That was soon reversed when the FTSE 100 index shot up above the 6,400 level. That is where it remains today.

 

High Levels of Volatility Post Brexit

For spread betting companies, the consensus was that most traders opted for a remain vote. Now however, spread betting continues on how the referendum will impact on the UK political scene. Recall that Prime Minister David Cameron announced his retirement as soon as the votes were tallied. His resignation will be effective in October 2016. There is still no indication who his likely successor will be, with several contenders including Theresa May and former London Mayor Boris Johnson. Neither of those candidates have the support of the majority. Now, there is talk of the cable (the GBP/USD pair) plunging to 1.20 by Christmas, and the Bank of England slashing interest rates. We already know that the BOE has proposed quantitative easing policies in July and over the summer months. As yet, the precise timing thereof and the scope of these policies remains unknown. Regardless of all the speculation, the UK has not as yet left the European Union.

 

2 Years of Bliss Before the Brexit Storm?

The next prime minister of the UK will have to win a popular majority by running on the Brexit ticket. It’s one thing to hold the referendum and receive an advisory vote from the populace, it’s another to invoke Article 50 of the Lisbon Treaty and put a Brexit interaction. The damned if you do, damned if you don’t scenario that awaits the next prime minister is akin to a poisoned chalice. It will prove especially unpopular to any incoming leader whom takes a decision that will be detrimental to the UK. Whether or not it comes to pass is anyone’s guess and that’s where spread betting companies are seeing lots of interest with traders. What should be remembered is that between July 2016 and at least July 2018 very little will change in terms of Britain’s relationship with the European Union. It will be business as usual with an undercurrent of angst and tension relating to how the UK plans to extricate itself from the European Union.

 
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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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