Brexit’s Impact on the Pound and the Foreign Exchange Market
When the United Kingdom went to vote on the Brexit referendum in 2016, most people assumed that a decision to leave the European Union would have an effect on the world’s markets. However, few people predicted just how devastating the situation would become and just how deep and wide-spread the complications would be for the foreign exchange market.
Today, there is no longer any doubt about how much Brexit has affected the pound as well as the rest of the world’s leading currencies, and as the British government struggles to come to an agreement with Brussels, the problems are piling up.
To better understand the situation we have to go all the way back to the actual referendum in June 2016. Directly after the results from the vote were made public, the sterling took an unparalleled nosedive. Weeks later, after the currency had recovered ever so slightly, the currency initiated a decline that would last for several months.
In 2017, the pound found new support and started an incline that saw forex traders from all over the world regain trust for the sterling again, but it wouldn’t last for long. After having almost climbed back to pre-Brexit levels in early 2018, the increasingly more difficult Brexit talks pushed the pound down again, and over the last 6 months, it has been a literal free fall for the British currency.
And just as we thought the situation couldn’t get any worse, it did.
A few weeks ago, the pound, which has fallen over 10 percent against the dollar since April, was officially marked as one of the most unstable and unpredictable instruments on the forex market.
How Is Brexit Affecting the Forex Market Right Now?
On Thursday, November 15th, the pound experienced the sharpest intraday drop against the dollar since the Brexit referendum in 2016, and it sent a shock wave across the globe. In less than 24 hours, the sterling fell close to 2 percent after a group of ministers had announced their resignation due to their disagreements with the prime minister regarding Brexit.
In turn, this pushed the pound to act even more erratic than we’ve gotten used to, and forex analysts decided to declare the sterling “untradeable,” which is unheard of for an instrument as established as the pound.
But the problem spans even further than that, and over the last couple of weeks, the falling pound has started to negatively affect the euro which is down more than 7 percent against the greenback since April.
The risks of the financial disruption that an unfinished Brexit deal could have when the UK officially leaves the EU in March is spreading, and as a result, the euro has started to act similarly to the pound. As if a failed pound wouldn’t be enough, we are now preparing to see the euro go down the same path.
At the same time, the nerve-wracking political situation in Europe is only helping the American economy, and it seems like for every cent that the pound loses, the dollar gains a handful.
Every time it seems like we’ve hit rock bottom we get a blunt reminder of just how much further the pound can fall. Moreover, there is not a professional forex trader or economic analyst that isn’t fearing what the indecisive Brexit talks could result in. In fact, it has gotten so bad that the pound sterling now has more in common with some of the world’s weakest and most volatile currencies than the world-leading currencies it used to be associated with.
Unfortunately, unless Theresa May’s cabinet can scramble together a Brexit deal draft that everyone is content with, we should assume that the sterling will fall even further. And all we can really hope for is that the pound does not drag down the euro and the European economy with it because a collapsing pound is devastating enough.
All things considered, calling the pound unstable and risky is a major understatement. If you listen to the advice from the forex experts at BullMarketz.com, you’ll do best if you stay away from the pound until we know where it is headed.