Will We See the Great British Pound Currency Fall?
Ever since the UK voted to leave the European Union (EU), GBP has had a hard time living up to its name. Currently, the pound is languishing at $1.22 and shows little sign of recovering some of the huge losses it has incurred since the Brexit vote, in fact it is still recording new lows.
So, what are the reasons behind the pounds continued poor performance, are we likely to see it recover or has it been permanently devalued by proxy?
To establish some context, it is important to highlight the pound’s price against the dollar pre-Brexit. Through May and June 2016, the pound was trading at around $1.45, but as soon as the Brexit vote result was announced on June 23, it plummeted to $1.33 and suffered more losses in the days that followed, dipping under $1.30.
As a result, UK businesses have found that competing in the global arena has become more difficult. Of course a weaker pound has not meant doom and gloom for UK business en masse, some large overseas companies have seized the opportunity to invest, while domestic companies like Foreign Exchange have been kept busy helping customers when they need foreign currency.
This, in part is why, despite the weak pound, the FTSE 100 and other indexes have remained strong.
Speculation as to whether the UK’s split with the EU will be a “soft Brexit” or a “hard Brexit” has, understandably, been high on the UK media’s agenda since the vote and the news surrounding the negotiations has only served to worsen the plight of the pound. Indeed, when news first began to emerge suggesting that the departure would be “hard”, in October 2016, the pound lost more footing, falling to around $1.23.
The US election on Nov 8 2016, offered a little rest bite for the pound and Donald Trump’s triumph saw the pound trading up against the dollar at around $1.27 by the end of that month. Whether or not the dollar will remain strong once Trump actually takes office is unclear, but his ultra-pro-business ethos may mean that the dollar does remain strong and this will further compound the British pound’s difficulties.
More recent news, has seen the pound suffer further setbacks, more talk of a “hard Brexit” and a worse than predicted widening of the UK’s trade deficit have plunged the pound to its lowest level against the dollar since the Brexit vote and on January 11, 2017 it was trading at $1.20. Some analysts are predicting an improvement is the area, but for the time being the outlook is poor.
The overall trend is not difficult to spot, the pound is in a downwards spiral that, for the time being, it seems unable to break out of. Perhaps the most important question that will shed light on its future is how and how quickly Theresa May and her team can settle Brexit and how this will affect the UK’s membership of the single market. But with EU leaders digging their heels in, it seems unlikely that the “divorce” will be finalized quickly.
This could leave the pound in dire straits for some time to come and if the trend towards anti globalism that is blowing through world politics continues and if the UK finds itself isolated from the EU, then the fall of the Great British pound may well just keep on getting worse.