With all the hype surrounding the U.S. election and the Chicago Cubs pursuit of a long overdue world series pennant, it seems like Brexit happened ages ago. And you could forgive those following U.S. markets near their all-time highs for thinking it was just a blip on the radar.
But the British pound is here to remind us all that the Brexit vote fall-out is alive and well, thank you. While these sorts of shocks to the system can sometimes resemble a quick sell-off, followed by a new normal at the lower level, we're not seeing that here. The pound was down -8.81% in October and is down -10.29% from the lows the day of the Brexit vote. That's not a shock… that's continued selling pressure from those concerned Brexit may have lasting effects on the British economy.
The most recent fall to new multi-decade lows came on news there might be a "Hard Brexit" from the EU, meaning rip the Band-Aid off approach versus a slow and steady unwinding of policies relating to the EU. This "Hard Brexit" is being taken seriously when you consider that the U.K. government only wants U.K. nationals to contribute work and analysis on Brexit.
Across the pond, the U.S. Dollar Index (aka the greenback) is up 2.6% thus far through October, back at its March highs. This makes sense when you consider the greenback is measured against six different currencies, including the British pound. Meanwhile, a trending British pound is a good thing for systematic Managed Futures managers that trade currency markets, while also contributing to a trending U.S. Dollar Index which does so much more for commodity market prices and trends there (see our infographic on commodity price movers here).
The last time we witnessed an environment of a trending U.S. dollar was back in 2014, when Managed Futures as a whole experienced some of their best performance to hit new all-time highs. But it wasn't because every manager was long the U.S. dollar, it was because the way the dollar affects the commodity markets and their prices. It might not be the first thing you think about, but the commodity markets being priced in U.S. dollar means commodity markets can move based solely on the movement of the dollar, without the typical supply and demand levers.
So while U.S. stock and bond markets seemingly shrugged off Brexit as a non-event after the initial worldwide panic, continued weakness in the pound driving the U.S. dollar higher could result in multiple commodity markets moving as well - meaning Brexit may still play a bigger role than previously imagined.
Disclaimer: Past performance is not necessarily indicative of future results.