Brexit Predicted Effect on the GBP



Posted on: 26th July 2016

Right now, the British pound is performing at its worst level in more than 30 years against most key global currencies. Less than a month ago, it was at a higher level than it was at when the EU referendum date was first announced by David Cameron. Speculation has been wild with regard to the possible effects of an EU exit, despite the fact that most of it is little other than that…speculation. And while there’s been some volatility over the weeks and months, it turned out to be nothing compared to the extraordinary events that shook the global financial community on June 23rd.

Unsurprisingly, things are set to go into overdrive over the next few days as trading continues to heat up globally. Whichever way the UK government decides to take things, it’s going to be a period of incredible volatility. But at the same time, economic experts are advising their clients and customers not to read too much into what’s to come in the immediate future. There will be huge swings in either direction over the coming days, weeks and even months, but this doesn’t necessarily mean any rash decisions should be made.

As far as the governor of the Bank of England and thousands of leading economists were concerned, the plummet in the value of the pound was inevitable…and so it proved. The GBP dipped to three-decade record lows overnight Thursday, only to then take another pounding Monday morning at the time the Asian markets began trading.

However, there’s comprehensive uncertainty about exactly how long the GBP’s slump will last and whether in the grand scheme of things, it’d be nearly as negative as it appears right now. And given the fact that we won’t be finding out for a while…well, let’s just say uncertainty is something that doesn’t bode well with markets.

Every time an opinion poll was published prior to the vote, the pound swung in accordance with its results. As such, we can expect more of the same going forward – only in this instance with the movement being based on speculation, government action/inaction and how it’s all shared globally via the media.

Suffice to say, the “Buy the rumour, sell the news” pattern is prevalent here to say the least.

It’s also important to remember that the GBP was way stronger than expected in the run-up to the EU vote, which when considered takes at least a little off the sting felt by those losing big at the time of its inevitable fall. Some continue to claim that there may have been a drop in the value of the pound even if the remain party had been victorious – something it seems we’ll simply never know.

In truth, there hasn’t been a situation like this for a generation and there’s really not a single person out there who knows what’s going to happen – it’s never been contemplated before. It’s a comprehensive unknown and while there’s plenty of speculation, the long-term outlook is literally impossible to clearly map out.

As such, the general advice is to be wary of reading too much into what happens for the immediate future, as the short-term impact on the pound…albeit catastrophic…may prove to be exactly that – short-term.