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3/11/2019 0 Comments

The Pound rallies on changes to Brexit deal

The Pound rallied in early Tuesday trading in Asia as new that the European commission agreed to changes to the Brexit agreement. This is the final chance that the UK will probably have for negotiations with the commission before the end of March deadline. With a vote on the deals coming on Tuesday, there will be another vote Wednesday, should this one be rejected, to determine if they should leave without a Brexit deal. If none of those are passed then a delay in the Brexit will have to be voted on. 

One thing to keep in mind, is that the macro picture we are seeing will not improve as a result of the Brexit outcome. So while we might see an increase in volatility in the event of a no deal, the Euro is still likely to suffer in the longer term as slowing global growth will test the central banks and their ability to soften the blow. These monetary policies will only be able to do so much with most central banks (the US being an exception) still near the top of their easing cycle. Fiscal policy and the ability for banks to lend will be the main factors in managing through the next slowdown. The Euro area is suffering in both of these areas because of the 'Doom Loop' where banks hold sovereign bonds, and the lack of political will for the better off countries in Europe to help direct capital where it is needed most. 

This is where you could see some resurgence in the UK economy after the Brexit deal (the outcome of the deal will determine the length before growth comes around) where lending starts to open up as less uncertainty causes banks to boost capital. The outcome of this week could provide opportunities to look at buying UK assets over European ones as Brexit winds down and the overall macro economy is taken into account in Europe.
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