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Johnson’s rhetoric may be just a negotiating tactic to ramp up the pressure to get movement from the EU. But if he fails, I think it’s going to be very difficult to force a no-deal Brexit through Parliament.
I believe sellers of sterling were always looking for a bounce on the view that Johnson could get a deal through. That didn’t last long. Sterling buyers, meanwhile, seem to have no good reason to go long sterling because it now looks like sterling weakness is going to continue.
I think people will start to get worried if sterling breaks below $1.20, which would be a big headline-grabbing number.
Interest rate policy
I suggest it’s best to let the Federal Reserve and ECB cut their interest rates and address matters later. A hard Brexit would clearly justify cutting rates, even if the pound continues to fall, if only to take away some of the initial shock to the economy. But without clarity, it’s hard to see them doing anything.
Avoiding a cliff edge should spark a move higher for the pound. But if Boris Johnson continues to paint red lines as his predecessor did, it isn’t going to help.
Avoiding a cliff-edge should spark a move higher for the pound. But if Boris Johnson continues to paint red lines as his predecessor did, it isn’t going to help.
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