No Deal Brexit A Disaster? Currency Markets Cry "Bollocks!"

Since the Brexit Referendum was announced in 2016, the legacy media has been full of the dire prognostications of the many trials and tribulations that would befall the United Kingdom should they actually up and quit the EU.

Despite the best efforts of the naysayers of Project Fear, Brexit passed with a healthy margin.

And still the naysayers kept up their drumbeat of depressive doomsday declarations.

Theresa May turned what ostensibly were relatively straightforward "divorce" proceedings into the stuff of tabloids, and then the naysayers felt vindicated. As her Brexit deal was voted down an embarrassingly three times, the naysayers gloated.

Then Theresa May resigned as Prime Minister, and on July 24, 2019, Boris Johnson moved into 10 Downing Street. How the narrative has shifted!

During the first five days of August, the Brexit headlines were talking up the "inevitability" of Boris Johnson having to negotiate a proper Brexit Deal, despite all his chest-thumping rhetoric, as this random sampling of news sources demonstrates:

• August 1, 2019: Senior MPs rubbish claim that Labour rebels would help Boris Johnson pass a Brexit deal

• August 1, 2019: Boris Johnson Loses First Election Test Against an Anti-Brexit Alliance

• August 4, 2019: Boris Johnson Dreams of a “Side-Deal” Brexit

• August 5, 2019: We need a Brexit deal – so why is Johnson indulging in cynical electioneering?

The conventional wisdom during those five days was quite definitely tilted towards there being a Brexit deal of some sort--either a revision to Theresa May's proposal, a Brexit delay followed by a deal, or Boris Johnson would whip up an entirely new deal at the eleventh hour to save the day and the country.

However, during the next five days, the tone of the news shifted. Slowly, perhaps even grudgingly, the legacy media conceded that Boris Johnson might not be bluffing after all, that he might actually push to crash the UK out of the EU in a "No Deal Brexit" on October 31st--the ultimate "Trick Or Treat" for All Hallows' Eve:

• August 6, 2019: EU now 'planning for No Deal Brexit as Boris Johnson has no desire to negotiate'

• August 7, 2019: The UK can't even have a proper constitutional crisis

• August 8 , 2019: Cut red tape to ease trade after no-deal Brexit, Boris Johnson told

• August 9, 2019: No-deal Brexit preparations 'top priority', Boris Johnson says

• August 9, 2019: Brexit: Boris Johnson accused of ‘breaking economy’ over no-deal threats as recession fears mount

The media is now more or less convinced that a "No Deal" Brexit will happen--and is uncertain whether or not it will happen on October 31.

With yet more vindication in hand, surely the Brexit naysayers are gloating over the Brexiteers as the markets begin to punish Britain for the folly of separating itself from Europe.....right?

Wrong.

The chart at the top is the changes in currency valuation, the Euro vs the British Pound, over the last two months (from 17 July to 16 September).  Notice how the Euro peaked on August the 10, at £0.93927? Notice how the Euro has steadily declined against the British Pound since that date? Even before the potential "Black Swan" events of September 14-15 (the Iranian/Houthi attack on Saudi Arabia's oil production facilities and resultant loss of half of the Kingdom's production capacity), the currency markets were shifting away from the Euro and towards the British Pound. This is the exact opposite of the movement one would expect if the currency markets were betting against the British Pound.

Intriguingly, the Euro against the US Dollar shows a similar peak on August 10, followed by a persistent decline, although in the case of the Dollar the shift is more erratic and more pronounced. While there may have been the beginning of a Euro recovery against the dollar starting in September, the aforementioned "Black Swan" moment appears to have squelched that bounceback.

When comparing the US Dollar to the British Pound, the two currencies were more or less moving sideways during August, and then the dollar fell against the pound starting on September 3, and only beginning to regain ground on September 14--quite likely a "flight-to-safety" reaction to the Iranian/Houthi attack.

Full Disclosure: I am not a currency trader nor a financial analyst, and none of this is to be taken as investment advice or guidance.

In business especially, actions always speak louder than words. The words of the legacy media have been that Brexit, and particularly a "No Deal" Brexit, will be a disaster for the UK. The actions of the world's currency speculators, who are literally betting fortunes on the next economic ripple within the worlds leading economies, has been in the past month a somewhat derisive "Bollocks!" (apologies to any actual British folk if I am using the colloquial expletive incorrectly). Currency markets are steadily bidding up the British Pound and bidding down the Euro as the deadline for Brexit draws closer; it may lack a certain dramatic flair, but it is nevertheless a solid vote of confidence in Brexit, even in the "No Deal" Brexit.  The Euro would not be steadily losing ground to the Pound if the currency markets had any misgivings about Brexit.

When China let the bottom fall out of the yuan during the last few days of August, I noted that while much was made of the yuan's fall against the dollar, very few financial commentators even noticed a seemingly synchronous drop of the euro against the dollar, despite the absence of any negative EU news at the time. At the time, I offered up the following conclusion:

The one thing that seems certain about the legacy media's prognostications about the state of the world is that they have the narrative all wrong. With respect to China and Europe, they have it provably wrong, which only begs the question what else do the chattering class "experts" have completely wrong?

There will be no final answers until November 1, if then, but, if the current currency market trends hold through October, we quite possibly could add Brexit coverage to the list of things the chattering class "experts" within the legacy media have gotten very wrong.