Brexit has caused a dramatic fall for Sterling against the majority of major currencies. The International Monetary Fund (IMF) warned yesterday that if trade negotiations between the UK and the EU do not go smoothly there is the possibility of Britain falling in to a recession. I am not pessimistic. I think now we have a new cabinet in place and Theresa May at the helm I think we will see a gradual recovery for the pound. She is due to meet Angela Merkel today to discuss how to handle trade negotiations post-Brexit. There are however two potential stumbling blocks for a Sterling rally. Firstly, there is the interest rate decision on 4th August and it is widely anticipated there will be a cut to 0.25%. There is also the possibility of Quantitative Easing (QE). QE is essentially pumping money in to an economy in order to stimulate growth. Mark Carney, the governor of the Bank of England (BOE) has indicated there is £150bn available. If QE is going to occur expect a drop in Sterling .
The second event which could hurt the pound is if the button is pushed on article 50 which initiates the UK’s withdrawal for the EU. all though I do not anticipate this to happen until early 2017 it will devalue the pound if it does occur.
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