The week ending the 16th June saw the markets displaying uncertainty about the GDP/USD pair with consecutive Doji candles on the 14th and 15th with a significant degree of through-flow only highlighting this lack of assuredness of the part of investors. This is understandable, as uncertainty seemed to be the underlying theme of the events which underpinned economic developments during the week in question. Indeed not only the UK but also the USA seemed to be sending out mixed messages, with the respective Central Banks sounding hawkish noises as the political news indicated only increasing levels of uncertainty, doubt and general indecision. The markets’ uncertainty seemed a reasonable reaction in the face of this medley of mixed messages.
The position of the UK seemed clear at first glance, but a second and a third revealed deeper and more baffling trends. The government of the UK was and is facing the Brexit negotiations, due to commence on the 19th June in a weakened condition following the decision to call a snap election. If Prime Minister May hoped to strengthen her majority and gain a clear mandate to negotiate Britain’s withdrawal from the European Union then she scored a political home goal of epic proportions. In the aftermath of the election, she was left with no overall majority and forced to scramble to negotiate a Supply and Confidence arrangement with the DUP of Northern Ireland if she was to be able to govern at all. As the DUP is a confirmed Euro-Sceptic party then this might seem to indicate that the UK might attempt to negotiate a hard Brexit, a move most British businesses earnestly seek to avoid. In light of this surely the future of the GBP can be predicted.
Or can it? The fact is that the DUP is Euro sceptic in principle; it was the most sceptical of all British political parties before the rise of UKIP. However, it must be remembered that the DUP is a party of Northern Ireland and thus wants to maintain as open a border as possible; the preferred phrase in use is ‘frictionless’. This is very much in accord with the sort of Brexit that British businesses are hoping for, and it is entirely possible that a soft Brexit was one of the conditions insisted upon by the DUP before they entered into any coalition deal.
In light of this consideration we have the UK facing a stern seeming EU set on ensuring that the matter of British obligations are honoured before any trade negotiations be considered, with a British government that may be committed to achieving a free trade, minimal customs, the continuing recognition of pre-existing standards and rules and the maintenance of universal access to goods and services. In light of this, is it any wonder if the market is unsure of what will eventually transpire?
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