Political uncertainty

The markets don’t like political uncertainty, and so the pound took a nose-dive against other currencies on news of the upcoming referendum on whether or not Britain should exit the EU (the “Brexit”).  Although PM Cameron has done a  great job in renegotiating the details of the agreement between Britain and the EU and the majority of voters still want to stay in the EU, nevertheless uncertainty is never good.  Some stalwarts of the Conservative Party, such as Michael Gove, one of Cameron’s staunch friends and Boris Johnson, former Mayor of London, have opted for the “leave EU” camp.  So Cameron has a fight on his hands.

Watching the US News one would not know about the Brexit, but the current state of play of the Presidential candidates is all the news.  With the continuing  defeats of Bernie Sanders by Hillary Clinton in Democratic primaries, and many hopefuls dropping out of the race after a poor showing in the Republican primaries, including Marco Rubio, things are becoming clearer.  It may come down to a contest between Trump as the Republican candidate vs Clinton as the Democratic candidate.  But, strange things can happen.  Where will all the Republican votes go after the also-rans drop out, leaving a total of ca. 20% of the vote up for grabs.  And then if one or other of Cruz or Kasich drops out, what happens to their votes, will they go to the other contender.  If that’s the case, then it may significantly reduce Trump’s lead, although so far that does not seem to be happening.

But, all this uncertainty in the US Presidential race leads to uncertainty in the markets. The dollar has been sliding and the pound even more.  The euro is sliding already because of the migrant crisis and Britain’s possible exit, as well as the future of the EU being clouded by the subsequent changes that other countries beside the UK may want to their treaty agreements.  This all leaves very few strong currencies in the world.    The Yuan is down because of economic troubles in China, and the Japanese Yen is also down. The Israeli Shekel is one of the strongest currencies in the world now. Tell that to the BDS’ers.

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