How Would the Pound React to Brexit?
Posted by Allison on 11 July 2016, 11:41
We wondered how the British pound would be affected by the EU referendum vote, and now we have our answer. Would the pound struggle following a vote to leave the European Union? Here we will find out.
An overview of the currency markets for June 27th – July 1st 2016
The week began with the pound notching up a rate of 1.3704 against the US dollar, after dropping considerably following the outcome of the vote the previous week. By Monday night, it experienced another notable drop, this time to 1.3187. It would perk up over the next couple of days though, rising to 1.3386 by Tuesday evening. There was more good news the following day as the pound rose further to 1.3434, but we then saw another drop to close out the week with, as the pound dipped back to 1.3282.
We had another drop against the euro too as the fallout continued. The pound began trading on 1.2383 here, before finishing on Monday evening with a rate of 1.1990. Once again though, the next couple of days were more encouraging as the pound edged back up as far as 1.2113 on Wednesday night. We were expecting some upheaval still though, and we were correct in thinking that as the pound fell back to close the week on 1.1928.
The fallout continued elsewhere in the world as the British pound began the week on 10.636 against the Hong Kong dollar before dipping to 10.230 on Monday night. After climbing steadily back to a position of 10.422 on Wednesday, it then struggled for a couple of days before it dropped back into a week-ending position of 10.305.
The pound opened on 1.9334 against the New Zealand dollar – down considerably from 2.0579 the previous Thursday – the day of the vote. Monday’s drops carried on across the board as the pound reached a low of 1.9334 on Monday night. However, we again had an up-and-down week of exchanges here, which was no big surprise by this point. Instead, the British pound dropped back to settle on 1.8499 by Friday evening. This was only to be expected.
Similarly, we had a major difference to contend with against the Australian dollar. We began trading on 1.8464 on Monday morning before dropping back to hit a low of 1.7814 on Monday night. The week was filled with a selection of drops and just one improvement which happened early, on Tuesday. That meant the closing rate here was 1.7754 on Friday night.
Notable events in the world of currency
The British pound falls against the Canadian dollar
No surprise to see another drop here as the pound fell from 1.7822 to 1.7165 this week.
A smaller drop against the Swiss franc
There was a milder drop here although still a notable one. The pound started the week on 1.3384 and fell back to 1.2924.
More bad news against the Icelandic krona
We had more falls here as well, from the starting rate of 170.775 to 162.557 this week.
We knew the results of the vote would be seen and felt in the currency markets. Indeed, the Brexit outcome has led to major drops in the value of the pound. However, this can have advantages in some ways, just as there are disadvantages in others. This is always the case, so perhaps we should focus on the benefits of these falls rather than viewing them as very bad news.
They should certainly make it more attractive for people to come to the UK, so the tourist industry may well benefit. Time will tell whether the value will improve again and if so, how long it may take for this to happen. There is every chance things will settle down as time goes by, and more becomes clear in terms of how the vote will be handled.
We shall be watching closely and reporting on every change we see in the currency markets in the coming weeks and months.