In June 2016, Britons voted to end their country’s four-decade-long membership of the EU. Back then, they had no way of knowing how Britain or her economy would fare after the vote. They could only guess, but not for long. Shortly after the referendum, the pound fell sharply against the US Dollar and the Euro and continued falling. It has so far dropped by close to 20 percent.
What precipitated this fall?
Events Affecting the Pound
The referendum result had the greatest effect on the pound. On voting day, the pound traded at $1.46 and €1.28. But after the results were announced a day later, it fell to $1.37 and €1.23. Two weeks later it had dropped to $1.29 and €1.17, a total of about 10 percent.
Three months later in October, the pound suffered another blow. This time the highest court was deciding whether the Prime Minister could start the Brexit process without going through Parliament. By the time it ruled she could not, the pound had fallen by more than 4 percent in two weeks to €1.12, though the dollar had risen slightly to $1.32.
In January the following year, the pound experienced another setback as hardliners pushed the Prime Minister to leave the EU trading block. By the middle of that month, the pound had dropped to by 3.5 percent in two weeks to $1.20 and €1.14.
More trouble was on the way. In late March, Britain started her formal exit from the EU, a move that pushed down the pound by nearly 0.70 percent in just one week to $1.24 and €1.16. Soon after, the Prime Minister lost her parliamentary majority in the June elections, and the pound dropped down further to $1.33 and €1.14.
One-and-a-half-years later, and after much fluctuation, the pound is more or less stuck in the same spot. According to figures from currency-convertor.uk exchange rates, it traded at traded at $1.32 and €1.14 on the last day of January 2019.
Events Likely to Affect the Pound
Until Britain leaves the EU in March 2019, the pound will continue to fluctuate as investors become more jittery and speculative. They know all EU treaties expire on that date. What they don’t know is what happens thereafter.
In the meantime, they can only watch and listen to British and EU negotiators, hoping to draw clues from their statements. As a result, what these officials say will stir either confidence or fear in the markets, which will, in turn, react appropriately. And the worst is not yet over.
After the exit comes the transition period running to 2020 during which the EU member states can extend the treaties with Britain. But, no one knows if they will. And if they do not, no one knows how to unravel decade-old treaties.
The EU has hinted that the process may be too complicated, even saying Britain can reapply for membership if it wants to. Again, no one knows whether Britain will rejoin. And this climate of uncertainty, the pound will only continue to weaken.
Effects of a Weak Pound
A weaker pound means more money spent on imports. And seeing that Britain imports more than she exports, she can expect to pay more in the coming months. Likewise, British holiday goers will pay more when travelling abroad. However, not everyone’s complaining.
A weak pound means more money for importers now that British goods and services are cheaper abroad. And while British tourists are paying more abroad, foreign tourists are paying less in the UK. The tourism sector is, therefore, booming.
The Brexit vote affected the pound sterling more than anyone expected. Since then, every major event related to Britain’s exit from the EU has adversely affected the currency. And seeing that the final exit day is months away, the currency can only be expected to fluctuate further.
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