British Pound: Topsy-Turvy

As Prime Minister May on Tuesday called a general election on June 8,  the pound climbed to a five month high on expectations for a softer Brexit.

Pound/Dollar exchange rate

Source: Datastream

* Topsy-turvey meaning: upside down, confused. Also “Topsy-Turvy” is a 1999 British musical drama film.

Until now…

Gourinchas and Hale argue that expectations of a) weak economic conditions arising from the separation from the EU; b) aggressive easing by the Bank of England and  c) the Balassa-Samuelson effect, especially on London real estate, will all contribute to keeping the pound weak.
Brexit: Whither the Pound?
By: Pierre-Olivier Gourinchas and Galina Hale – Berkeley, Federal Reserve Bank of San Francisco

…and a depreciated pound will increase UK exports only modestly, argues Wren-Lewis.
The Brexit depreciation and exports
By: Simon Wren Lewis – University of Oxford

Going forward – the end of the pound depreciation?

Wu, Wheatley and Sornette found a significant bias towards Remain in the pound/dollar exchange market. They argue that although the Brexit outcome of the referendum became evident rather soon, “the market was severely delayed in reflecting this fundamental information.”
The British Pound on Brexit night: a natural experiment of market efficiency and real-time predictability
Authors: Ke Wu, Spencer Wheatley, Didier Sornette
From: Swiss Finance Institute

Has Theresa May switched to a cooperative game?
Brexit negotiations: Hawks, doves and chickens
By: Edouard Vidon – Banque de France