Currency investors factor in no-deal Brexit as pound flounders
The world’s stock markets and economists think leaving the EU won’t have a sterling outcome. That’s the way the protracted Brexit negotiations are playing out in a slow, drawn out and economically painful rout of the GBP.
The British pound hit a two year low of $1.212 against the USD on Tuesday, just another blow for the currency following several days of decline since Brexit frontliner Boris Johnson became the UK’s next PM, taking over the poisoned chalice from former PM Theresa May.
The new PM’s hardline indications that he would take a no-deal Brexit have shaken confidence in the pound and sent its value on a downward trajectory since July 24. The downward spiral is partly world economists and currency traders factoring further drama for the pound if and when the UK crashes out of the EU in October.
The British sterling initially slumped after the Brexit referendum in 2016 and has never fully recovered.
After the pound 2016 trading at nearly $1.50 against the US dollar, two significant drops followed later that year: In June, after the Brexit referendum results were announced, and then in September, after the reelection of Labour leader Jeremy Corbyn, who at the time supported Brexit. Despite a recovery in 2017, the pound slumped again the following year as a deal between the U.K. and the European Union looked less and less likely.
British PM Theresa May surviving a no-confidence vote in December 2018 was followed by a small uptick in the pound’s value. But by the time May announced she would step down on May 24, the pound was back to where it had traded before the no-confidence vote.
The value of currency is determined by several factors, but one conclusion that can be drawn from this chart is that events favoring a hard-line exit from the European Union have usually led to the pound’s depreciation and will likely lead to further drops as investors factor in hard times for the GBP.
At lunchtime today the British Pound had fallen further against the Thai baht.
