The Snowflake Currency
The Snowflake CurrencyIf “Snowflake Generation” is a term used to describe today’s teens and young adults as being “overly precious, taking offence at the slightest slight and being generally less resilient than previous generations” then… I’d like to suggest that the pound is becoming the “Snowflake Currency”.
(Of course, we are putting the blame squarely on the currency itself and not all the idiots like us who trade many a kneejerk reaction in the forex markets).
October has been a rather choppy month with GBP/USD ranging from around $1.34 to almost touching $1.30 before moving back above $1.33.
Then of course you have yesterday’s 1.7¢ mood swing with a low around $1.312 and a high around $1.329.
Flakey October 2017 Chart
Why Has Sterling Become the Snowflake Currency?The obvious answer is Brexit or rather the lack of clarity over Brexit.
The UK referendum took place on 23 June 2016 and the divorce is still being negotiated 16 months later.
With such protracted proceedings it’s no wonder that the youngest child, i.e. sterling, is less resilient to the latest rumour, conjecture or headline.
The pound’s big brother, the euro, has proven largely resilient to Brexit shenanigans.
Hissy FitYesterday’s mood swings came about as Michel Barnier, the EU’s chief Brexit negotiator, admitted that the Brexit talks were currently deadlocked.
The pound crumbed.
Not long after that, Handelsblatt, a German business newspaper, reported that the EU is willing to offer the UK a 2 year transitional deal whereby the UK would meet its financial obligations but give up its voting rights.
The pound wiped away its tears and thought that was good news (albeit clearly worse than the existing UK-EU deal).
What Next for the Snowflake?It’s not going to melt but it will continue to be overly offended at the slightest insult, or hard truth, for years…
Yes, years. And that’s ignoring my personal opinion of Brexit and my view that politicians are too short-term-ist to be able to come up with a workable and pragmatic solution.
More importantly, as mentioned above, the divorce is still being discussed 16 months after the vote and we haven’t even begun to negotiate a possible 2 year transition period.
trending_upNote: I’m a big buyer at 2 years.
Of course, it doesn’t help that the UK doesn’t really know what it wants. It’s very difficult to negotiate when you don’t know what you want.
It’s very difficult to negotiate when you don’t know what the UK actually voted for.
If the UK clearly voted to exit the single market you’d just start there. Simple. Alas we didn’t have a referendum with clear options.
(Side note – George Osborne didn’t help by predicting the UK would experience Great Depression II if it Brexit’ed. Tit.)
Either way, the pound, and therefore, GBP/USD, will be battered around for years.
How to Spread Bet on This Mess?To me there are a number of options:
Toys out of the pram…
No Trading?Option 1 may be the wise way forward… it you must trade, use very small stakes so at least you’ll lose less.
No trading? Yes, no trading on GBP/USD. Relax, there are plenty of other markets to lose money on.
… And I’ll probably forget my own advice anyway…
Remember: Spread betting, CFDs and forex trading carry a high level of risk. You can lose more than your initial investment. These products are not suitable for all investors. Only speculate with money that you can afford to lose. Make sure you fully understand the risks involved and seek independent financial advice where necessary.