Has it Been a Positive Year for the British Pound versus the US Dollar?

Posted by Allison on 29 November 2018, 17:55

As 2017 came to an end, the pound finished the year on an exchange rate of 1.3517 against the US dollar. As it turned out, 2018 would start on a strong note for the currency. While there were a few dips during the month, the overall trend was clearly on the up. By 31st January, the pound had garnered a rate of 1.4170 – quite a rise on the month’s opening rate.

February was not quite as clear cut in terms of the journey the British pound was on. Here, we saw ups and downs, and while the first day of the month ended on 1.4235, it would not regain that rate (or anything like it) for the remainder of the month. This was borne out by a closing rate for the month of 1.3814. Far better was the rate we saw one month later as March ended. This turned out to be 1.4082.

So, where would the pound go from here? While it peaked at around the 1.43 mark in the middle of April, that would prove to be a clear peak for the pound this year. Since then, the overall trajectory has been down – quite clearly far lower than we expected. Indeed, the high point of the year so far is 1.4321, with the low point standing at 1.2701. That is a huge difference of just over 16 cents. It might sound unthinkable, but the markets have the proof. Part of this could be down to the uncertainty surrounding the Brexit agreement. However, the lowest rate mentioned above did not occur recently. Instead, it happened midway through August. It did recover somewhat from that point, although it has dipped again since.

The question now is where the pound will end up if the current Brexit deal goes through… and more interestingly, if it does not. Some – including the Bank of England – predict the pound would crash if the UK exited the EU without a deal. However, we have heard doom and gloom stories before, including prior to the vote on whether to leave or not. None of those stories came true, so can we expect the worst-case scenarios to come true this time?

In truth, no one knows. However, one thing we can say for certain is that it will be most interesting to watch the progress (or lack thereof) of the pound during the final weeks of 2018. With the date for leaving set for March 2019, next year looks set to bring some drama as well. We shall be watching closely to see if the pound rises or falls – and if it falls, how far it might dip before stalling.