Pound may hit post Brexit levels
Published on 16.08.2018 18:46

The British pound has now had its worse run since the global financial crisis and according to some analysts the pain may be far from over.

The currency has now fallen for the last 11 trading sessions as the chances of a no deal Brexit grow which would see the UK crash out of the European Union, which would throw the country into financial turmoil.

The market is now pricing in a 50-50 chance on a deal being reached over Brexit and they see the sticking point being the British Parliament, which has the final say on any negotiations. If the government does reject any deal the British pound hit levels lower than it reached immediately after the Brexit vote.

“The risk of Parliament rejecting any deal put in front of them late in 2018, or early in 2019, is increasing,” said John Wraith, head of U.K. macro rates strategy at UBS Group AG.

“This puts both the agreement on future relationships and the transition period after the end of March 2019 in serious jeopardy. If the prospect of no deal gains momentum, there’s bound to be bigger moves ahead.” He added.

It’s not just Brexit that is affecting the pound at the moment. External political factors are also playing their part such as the crisis in Turkey which currently has a riff with the US over the jailing of a US pastor which has led the introduction of sanctions by the US and caused the Turkish Lira to plummet.

"The pound seems to be unraveling against the US dollar due to a confluence of factors," said ING currency strategist Viraj Patel.

"While there's the obvious Brexit story, the recent move lower has been a global move. Broad emerging market turmoil is spilling over into a strong US dollar, especially against European currencies." He added.

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Andrew Masters

Analyst

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