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GBP/USD shrugs off government’s Brexit report

The pound was already higher before the government’s analysis of Brexit scenarios report was released this morning, climbing from a low of $1.2735 to a high of about $1.2790.  The beleaguered currency actually managed to climb further higher – hitting the $1.28 handle – despite the Long-Term Economic Analysis paper suggesting that Prime Minister Theresa May’s Brexit plan will make the economy worse off than if we were to remain in the EU. According to the government, the UK economy would be 3.9% worse off in 15 years’ time after Brexit, although output could be even lower – by some 7.7 per cent – if Britain leaves without a deal. The pound’s immediate reaction suggests two things. First, investors had already discounted the impact of Brexit on the economy – hence why the currency tumbled in the first place post the outcome of the referendum in 2016. Second – and assuming the government’s analysis is correct – it is a relief that output would ‘only’ drop 3.9% in the long term, as some economists had predicted much severe economic damage from leaving the EU. However, despite the rebound, it is worth pointing out that investors are not exactly scrambling to buy the pound, with the currency still remaining in the lower half of its recent trading range. There’s a chance – a good chance, in fact – that Parliament will not pass the Brexit Withdrawal Agreement next month.  Consequently, sterling’s upside will remain limited at least until after that parliamentary vote is out of the way.


Source: TradingView and FOREX.com.

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