Catch 22

16 August, 2019

Sam Roberts

So this week we have seen the UK economy ‘shrink’ for a second-quarter in succession. Technically if the UK economy performs the same way for another quarter, we will formerly be in a recession for the first time since the 2008/2009 financial crisis.

Boris Johnson (or rather the people behind Boris Johnson) have placed the UK in a dangerous (dependant on your standpoint) position.

If we leave on October 31st without a deal, then Ireland should remain aligned to the EU, so there will not have to be any need for customs checks, when travelling between Northern and Southern Ireland. This is what the Irish currently have today and is known as ‘The Irish Backstop’.

However, Boris Johnson has vowed to remove ‘the backstop’ deal, forcing the need for a ‘hard border’, where there will be a physical presence between Northern and Southern Ireland and tariffs have to be paid with all sorts of repercussions. The DUP are strongly against this and it is the Same DUP that have been ‘propping up’ the Conservative Government and giving them their current working majority of one. If the DUP pull their support, then there is a ‘snap election’ and while this takes place, no parliamentary business is allowed to take place, giving us a no deal Brexit by default.

Jeremy Corbyn stepped in with a master plan to block a no-deal scenario. Place a vote of no confidence in the Prime Minister and join him to form a party of National Unity, where we can have another referendum and he will oversee the whole thing whilst he is ‘temporary leader’ of the Country. Only problem with that is, no one actually wants Jeremy Corbyn to lead them anywhere.

Boris Johnson has already made it clear that he will leave, come what may, by the end of October and it seems by hook or by crook he will get his way.

‘Across the pond’, the U.S economy is also in dire straits, due to a combination of the U.S/China trade war and no real confidence from investors in the direction that President Trump is taking.

The ‘yield’ (amount of returns you get) on a U.S treasury note (or Bond) has for the first time in over a decade, pays more for short term investment rather than a longer term (10 year term) investment. This is known as an ‘Inverted Yield Curve’ and is not good. The idea is, you place your millions/billions in a government bond and over a longer period of time you are ‘drip fed’ a return. This is a staple of market and bond traders everywhere.

When investors start requesting returns on a shorter term investment (2 year term also known as a treasury bill), they are basically saying that ‘we do not have long term faith in where you are heading, so I’ll just take my money now thanks’. This is a bad sign for the U.S economy and whilst President Trump is blowing his own bugle, telling anyone who will listen, what a good job he is doing, the U.S stock market fell 800 points, directing everyone in the real world to brace themselves for a potential global recession.

There are no economic data releases for the UK today but to be honest, do you really need to see more?

Without sounding like ‘The Harbinger of Doom’ things are pretty bad and however you look at it, they will only get worse before they improve.

Now if you are reading this and either have a Euro or Dollar amount you need to buy, then the smart or prudent move would be to buy now before they get worse, thereby minimising your losses or (even more prudent) ‘lock in’ a forward contract, thereby freezing the rate, with a 10% deposit, so when things get worse, you are protected.

If you are selling Euros or Dollars, then once again you have options. You can sell now as the market rates are in your favour, more so than they have been for the last ten years or you can try and hold out for a few pounds more and ‘hope’ that you do not get caught out.

As my learned friend and Chief Analyst here at Currency Index so eloquently put it, ‘ no decision is the worst decision’.

Here at Currency Index, we have an understanding of the markets, years of experience and cutting edge, up to the minute data to aid us in giving you solid direction so you dont have to ‘hope’ that you get the best deal.

With so much going, why not give us a call today?