Connect with us

Forex

Pound Slides as U.K. Vote Springs Hung Parliament Before Brexit

Published

on

pound
  • Pound Slides as U.K. Vote Springs Hung Parliament Before Brexit

The pound headed for the biggest drop in a year after it emerged that the ruling Conservative Party has fallen short of an overall majority, just 10 days before Brexit negotiations are set to begin.

The currency slumped against all of its major peers as Theresa May’s Tories were set to miss the target of 326 seats needed to form a majority government, contrary to what many polls were predicting and the market expected. Still, it avoided dropping below $1.24, which the median estimate of analysts surveyed by Bloomberg had predicted under such a scenario. U.K. stocks rose for the first time in five days, while government bonds fell for a third day.

The result means there will be a period of uncertainty while the country, the European Union and investors await who will be at the helm during two years of EU exit negotiations. Sterling hit its lowest level versus the dollar since April after the first exit poll on Thursday predicted the Tories winning just 314 seats.

Should the Conservatives fail to form a workable government, it will be up to opposition Labour leader Jeremy Corbyn to try and form a pact with the pro-European Liberal Democrats and Scottish National Party, a potentially unstable alliance but one that could also boost market hopes of a softer Brexit.

“Investors will await more clarity on who will be running the country and who will be in charge of the Brexit negotiations,” said Valentin Marinov, head of Group -of-10 foreign-exchange strategy at Credit Agricole’s corporate and investment banking unit in London. “We still see scope for a GBP/USD move toward 1.25 and EUR/GBP toward 0.90,” adding that the bank would be reviewing its near-term forecasts.

Both the Conservatives and the Labour Party spent little time debating the country’s exit from the European Union, with the latter focusing its campaign on anti-austerity promises. The pound has borne the brunt of the U.K.’s decision to leave the European Union, having lost about 15 percent of its value against the dollar since the June 2016 vote. Fewer than five seats are yet to be announced.

The pound slumped 2 percent to $1.2702 as of 8:45 a.m. London time on Friday, after touching $1.2636, the lowest level since April 18, the day May called the snap election. It slid as much as 2.5 percent, set for the biggest drop since the days after the Brexit vote. The decline in sterling has already taken it below analysts’ median forecast of $1.28 by year-end. Against the euro, the pound tumbled as much as 2.3 percent to 0.8860, its weakest level since November.

Pound Scenarios

Despite the hung parliament outcome, sterling did not fall as low as some expected. A Bloomberg survey of 11 banks and brokerages conducted before the exit poll showed that sterling could plunge to as low as $1.20 on Friday while the median forecast for a level of $1.2350. That could either be because investors are awaiting who will form a government, or on the promise that Conservative Party weakness could result in a softer Brexit.

The FTSE 100 index of shares advanced 0.9 percent, the most in Europe. The gauge gets more than two-thirds of its sales from abroad, so the weaker pound typically bolsters the measure. British American Tobacco Plc and GlaxoSmithKline Plc were among the biggest gainers, while companies with a larger exposure to the U.K. dropped.

The pound’s weakness is “an uncertainty discount, rather than pricing the fundamentals of a potential leftist shift in the U.K. government, with a softer Brexit stance,” said Peter Chatwell, head of rates strategy at Mizuho International Plc in London.

“If this exit poll solidifies into reality then this market reaction should be ‘Trumpian’, i.e. on realization of a softer Brexit stance and more fiscally easy outlook, we should be factoring in greater growth and inflation and gilt supply, generating a steeper gilt curve and stronger sterling,” Chatwell said.

U.K. 10-year gilt yields rose three basis points to 1.062 percent.

For others, the result leaves the country little further forward than before the decision to call a snap election. It also raises the possibility of a further election before the year-end.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Naira

Nigeria Hits Historic High as Currency in Circulation Surges to N3.69 Trillion

Published

on

naira

Nigeria’s currency in circulation surged to a historic high of N3.69 trillion, according to data released by the Central Bank of Nigeria (CBN).

This figure represents an increase of N43.07 billion or 1.18 percent from the total of N3.65 trillion reported in January 2024 and a 13.64 percent year-on-year rise from N3.25 trillion reported in February 2023.

Currency in circulation encompasses the physical cash, including paper notes and coins, actively used in transactions between consumers and businesses within the country.

The latest statistics indicate a considerable uptick in the availability of cash within the Nigerian economy.

The surge in currency supply comes amidst lingering concerns over a potential cash crunch following the monetary policy adjustments by the CBN, particularly the aggressive tightening stance of the Monetary Policy Committee (MPC).

Analysts attribute this spike to various factors, including the fear factor stemming from the cash crunch experienced in 2023 and lingering uncertainties surrounding the administration of physical currency.

Despite the surge in currency in circulation, Nigeria’s economic growth remains sluggish, with projections indicating growth rates of around 2.9 percent to 3.1 percent for 2024.

Also, inflation remains a significant concern, with the headline inflation rate climbing to 31.70 percent in February 2024 from 29.9 percent reported in January 2024, according to data from the National Bureau of Statistics (NBS).

The CBN’s proactive approach to monetary policy, including a historic increase in the monetary policy rate (MPR) to 24.75 percent, underscores the central bank’s commitment to addressing economic challenges and fostering stability amidst persistent pressures.

Continue Reading

Naira

Nigerian Naira Surges to N1,350 per Dollar in Parallel Market

Published

on

New Naira notes

The Nigerian Naira has appreciated to N1,350 per dollar in the parallel market, a significant gain from its previous rate of N1,430 per dollar just a day earlier.

Similarly, in the Nigerian Foreign Exchange Market (NAFEM), the naira strengthened to N1,382.95 per dollar, indicating an upward trend across key forex segments.

Data from FMDQ revealed that the indicative exchange rate for NAFEM fell to N1,382.95 per dollar from N1,408.04 per dollar on the previous day, representing a gain of N25.09 for the naira.

This surge in the naira’s value has widened the margin between the parallel market rate and NAFEM to N32.95 per dollar from N21.96 per dollar previously.

Analysts attribute this impressive surge to recent foreign exchange reforms implemented by the Central Bank of Nigeria (CBN).

These reforms, including the consolidation of exchange rate windows and liberalization of the FX market, have contributed to bolstering the naira’s strength against the dollar.

The CBN’s proactive measures aim to promote stability, transparency, and liquidity in the foreign exchange market, fostering confidence among investors and strengthening the national currency.

Continue Reading

Forex

CBN Governor Reveals $2.4 Billion Forex Forwards Under Investigation

Published

on

Naira Exchange Rates - Investors King

Governor Yemi Cardoso of the Central Bank of Nigeria (CBN) disclosed that law enforcement agencies are currently investigating foreign exchange forwards valued at $2.4 billion.

This announcement came in the wake of the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday, March 26.

Governor Cardoso shed light on the meticulous forensic audit conducted on these transactions, which uncovered numerous discrepancies, rendering them ineligible for payment.

The CBN, while settling certain tranches of FX backlog, encountered transactions riddled with issues concerning their authenticity.

To address these concerns, Deloitte management consultants were enlisted to conduct a comprehensive forensic analysis spanning several months.

The audit revealed a multitude of irregularities, including allocations disbursed without corresponding requests, lack of proper documentation, and instances of outright illegality.

Cardoso emphasized the gravity of the situation, stating, “We refused to validate them because, apart from the fact that documentation was not satisfactory in many cases, they were outright illegal.”

He underscored the commitment of law enforcement agencies to investigate these transactions thoroughly.

Despite concerns about potential backlogs among stakeholders, Cardoso assured that the market remains open and transparent for addressing any outstanding contractual obligations.

The CBN has diligently verified and settled recognized backlogs of forward transactions.

This revelation comes at a critical juncture as Nigeria grapples with economic challenges, including inflationary pressures.

The MPC’s decision to raise the benchmark interest rate to 24.75 percent reflects efforts to stabilize prices and restore the purchasing power of the average Nigerian.

As investigations unfold and regulatory scrutiny intensifies, the CBN’s commitment to transparency and financial integrity will be closely monitored by stakeholders across the nation.

Continue Reading
Advertisement




Advertisement
Advertisement
Advertisement

Trending