Brexit is the most hyped event of the past year outside of Trump’s presidency. The change of EU dynamics, an uncharted path for the UK and the uncertainty of EU unity all make up for the plot of a ravishing Hollywood blockbuster. However, when the UK officially said goodbye to the Union with Article 50, the markets were anything but excited. The unexciting movement of the British Pound shows that the markets are fully prepared for the consequences of Brexit.
British Pound’s Performance
As soon as Article 50 was initiated, the pound witnessed gains by 0.64 percent and reached 1.1595 against the euro. The gains were subdued by midday but the pound made an overall gain of 0.18 percent, standing at 1.1542 euros. The markets have already weighed in and absorbed the possible uncertainties which resulted in a slugging movement of the currency. Theresa May’s speech did not include anything new or thunderous that the markets had not counted already. Because of this the pound did not take a beating.
Sterling’s performance against the US dollar was also as anticipated. The currency has traded in the range of $1.21 to $1.26 in March. It continued to reign within the same range on Wednesday as well. Sterling had gone to an 8-day low of $1.2377 but it gained only 0.2 percent with Asian trading, reaching $.2478. As the day progressed, the currency trimmed but made an overall gain, standing at $1.2403.
What Will Affect Exchange Rates?
We have been hearing about Brexit for a year now and it is evident that markets have priced the consequences. It is only after this that the exchange rate of the pound sterling will be affected. It would be interesting to note whether it would be a hard or soft Brexit and what terms will the EU and UK maintain after a formal divorce. Economists believe that the currency will continue to trade in its comfort zone against USD, lurking around $1.23 till June. Later, it is expected to go down to $1.21 but there are no signals of more volatility in the market.
The Deutsche Bank, however, has a more pessimistic view of the situation. It suggests that the currency will fall to a 31- year low against the USD, reaching the $1.06 mark. Brexit is still as confusing as ever but there are no signs of an impending doom in the currency. If it is a soft Brexit, UK will be in a better position. In case of hard Brexit, the pound may witness a slump but the extent of this is not yet calculated.
Anthony Young
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