The bright side of the devalued pound

A few days after the flash crash which sent the GPBUSD below 1.2000 before bouncing back, it is alarming that no concrete cause has been found.

Many are blaming altos but what would be the rationale to justify such a sell-off during the Asian session? Others claim that a fat finger order was behind the brutal move.

Even though such issues are concerning, especially as they bring the FX market’s microstructure into question, it does not change our fundamental view on the pound. We believe that it is a good opportunity for traders to reload their long positions. The Brexit consequences have been largely over-exaggerated and the nightmare scenario that was promised in the wake of the Brexit referendum has not played out as dramatically as expected.

A Brexit is definitely not the end of the world. Moreover, the devalued pound will see UK exports gain momentum within the next few months and the country is currently enjoying its lowest house price growth in three years. However, we remain cautious as a more-than-expected hawkish Fed could send the cable lower. This has not happened in recent decades but the Fed’s quest for credibility could take markets by surprise.

Yann Quelenn – Market Analyst – Swissquote