Pound Sinks as British Government Nears Collapse

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BrexitWe are seeing some strong trends in the Forex market now, which is good news for trend traders. There are a few major currencies falling to new multi-month lows, most dramatically over recent days, the British Pound. The Pound has been falling again today and reached a low price a few hours ago against the U.S. Dollar just a few pips above 1.26.

The slide in the British Pound’s relative value has been caused primarily by the fact that the current British government, while officially committed to implementing the Brexit which the British people voted for in the 2016 referendum, has declared it is now prepared to re-run the referendum and accept a continuing customs union with the EU even if the public again votes to leave. The British government was effectively forced to take this position as it has been relying upon votes from the opposition parties to get some form of Brexit deal passed, after its own members of parliament refused to pass any form of deal or no deal. The price demanded by the opposition Labour Party for support is effectively a re-run of the referendum.

A large majority of Conservative Party members, and it seems a majority of its members of parliament too, are appalled by this, and steps are being taken to finally force the beleaguered Prime Minister out of office. It looks likely that Prime Minister May will be gone in just a few days. It also looks likely that in today’s election for the European Parliament in Britain, the Conservative Party will be reduced to something like only 10% of the vote, an unprecedented result for a national election, while the Brexit Party are polling at about 35%. This only adds to the pressure.

Assuming the departure of Prime Minister May, it then seems possible that the office could go to a pro-Brexit politician, such as Boris Johnson, perhaps even someone prepared to countenance an exit without a deal. It is important to point out, and this is not widely understood, that a new Prime Minister could enforce a no deal Brexit at the end of October without requiring the consent of Parliament or any active vote whatsoever.

A no deal Brexit would be very likely to push GBP/USD down by something like two thousand pips overnight once it became certain. This would be a rare and huge opportunity for Forex traders.

Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment.