A villain murdered more than 80 people celebrating France’s Bastille Day in Nice, southern France. The horrific stampede is clearly an act of terror and it joins previous attacks in Paris and in the Brussels, Belgium.
France has extended the state of emergency hours after President Hollande announced the planned removal of this measure. We also heard that Italy is strengthening border controls with France. In markets, travel companies are trending lower.
The impact on currency markets is not huge: there is a modest “risk off” mood in markets, turning around the slide of the yen and reversing the fall in the pound. Also commodity currencies seemed to stall their advance.
Why would the move have more impact on the pound rather than the euro?
GBP just moves more: the common currency is trading in narrow ranges for a long time. On the other hand, the pound had significant movements well before Brexit. This is not likely to change anytime soon.
Brexit effect: The vote is already over of course but the actual implementation of a UK exit of the EU is far from clear. The terror attack could increase calls for a faster implementation of an exit, especially as this implies curbing immigration. As we know, free movement of people goes hand in hand with free trade, the single market. This applies either to full membership, something the public has rejected, or the “Norwegian model”, free movement of people and trade without official membership.
After this terror attack, the trend towards a bigger divorce, closing borders, could rise. This would mean less trade and a more significant economic impact from Brexit.
The horrific event also goes to show, in the eyes of many, the incompetence of Europe in dealing with threats, again reinforcing the forces of isolation. All in all, such tragic events do not really promote free trade.
What do you think?
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