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  • Hello, welcome back to The Note. On a much calmer day for world markets that we saw on Monday.

  • Stock markets across the world of January have been mixed certainly no continuation of the great drama we saw on Monday,

  • which does look for the moment, as though it was largely technical.

  • There was one very interesting development, however, which is the continuing fall in the Pound sterling.

  • As you can see from this chart, here, the pound is now almost below its lowest point from last year, set (??) just before the general election,

  • which will bring it to a low since 2010, and there are clear reasons for this.

  • If we take a look at the next chart, we're looking here, it's core inflation, excluding food and oil,

  • there's things that central banks can't control, and play near a clear guides to how central banks might act.

  • You can see that the UK had a genuine inflation problem in the years immediately after the crisis, which did eventually come under control, for a long time appeared to be largely in line with the US.

  • But at this point, UK core inflation is far below that in the US that plainly gives strong bilests (???) to the notion that we have a divergence in managing policy to look forward to.

  • People are now beginning to talk about the bank that are not even raising rates at all this year

  • when it was once very popular decision suggests that they would follow swiftly after the FED that kind of divergence strengthens the dollar and weakens the pound.

  • There's also something else going on though, which we can perhaps illustrate if we take a look at this chart,

  • which compares the Euro and sterling against the dollar since 2010.

  • Naturally, the Euro has done far worse over that period, although you can the family resemblance between the two.

  • We all know why Euro has done worse, primarily it's had a weaker economy and that's been because of great concerns about its very existence whether the Euro zone can hold together as a political entity.

  • Now entering this year, we begin to enter a season when there are some questions over

  • whether the United Kingdom can hold together as an entity, and whether it will remain in the European Union.

  • We have the Brexit referendum to look forward to.

  • I'm not going to try to predict the result of that referendum for you, but the key point as we have all seen from the European experience is that

  • if you see a rise in a perceived (?) odds of a rupture, obviously a Brexit might well lead the Scotland leading the UK.

  • All you need to see is a rise in the perceived (??) odds that the Brexit referendum succeeds from here for sterling to fall quite a lot further.

  • That is why people are beginning to position themselves for such an eventuality.

  • And it's why it's difficult to be betting too enthusiastically on sterling to strengthen anytime soon unless polls really starts (to) convince every one that Brexit isn't going to happen.

Hello, welcome back to The Note. On a much calmer day for world markets that we saw on Monday.

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