If the British Pound falls on Brexit, BoE and Fed risks. Let’s look at them.
The biggest risk is the fact that the Pound could fall as a result of the decision to leave the EU. Then once it falls, the debate in the UK will shift to what happens if there is no transition arrangement in place with the European Union, or if we will end up back in the Market.
That is the single biggest risk in the UK market right now. It could knock out our export markets, causing massive problems for the British economy. And many believe this will happen, particularly if we fail to secure a deal to remain in the EU, when we already have a trade deal with Norway and Switzerland.
The next biggest risk is the impact that Brexit may have on inflation. Most economists do not believe that the currency will go down, but they say it could go lower. Then we could see inflation rising after inflation rises after you take into account the impact of the weaker Pound on imports.
That is something we cannot know yet, because the Australian Dollar and the American Dollar could also fall. This means that when the Pound falls, inflation rises and when inflation rises, then that means we are now competing with the USA for the same trade.
At the moment, we are getting more of our exports to the USA through Asian Countries such as Singapore and Hong Kong, then through Europe. The last thing we need is to lose our trade with them.
But of course the pound could go down anyway, even if there is no impact on inflation. And once it does go down, then of course we will be competing with the USA and other countries to buy those commodities.
London is one of the main European markets for these commodities. So that is the biggest risk for the pound and its traders.
Of course, the biggest risk for all is what happens next. Many believe that if there is no deal on exit then there will be a disorderly process, which is not good for us.
That is because we could end up holding out for a few years. The Pound is very highly priced, so if it goes down it will not only affect the stock market, but also the House of Lords.
In terms of risks, as a currency trader I always look at things like this. And of course I think that the UK Pound will go down anyway, as the EU referendum has shown.
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