POUND STRUGGLING TO GAIN
Brexit, as we are all aware of, has affected the pound greatly and the effects are seen even today. The volatility has increased from the time the UK declared a vote (referendum) to stay or leave the EU.
The morning after the referendum, when the result became clear, the pound’s movement was perhaps the most obvious sign of this market madness. Sterling dropped more than 10%, suffering the biggest single-day fall for a major currency since the Second World War, and hitting a low against the dollar that had not been seen in 31 years.
Since that day, sterling has ridden something of a rollercoaster, enduring wild swings in value, a flash crash and a shift from being driven by economic data releases, to moving on political developments, especially those related to Brexit.
Let us first have a look at the graph of the value of the pound to dollars.
The above chart shows the value of 1 Pound to USD from April 2016 (i.e. before Brexit) to August 2017.
As we can observe, the Pound has dropped drastically from April 2016 to June 2016 and is seen to be falling till October 2016. However, after October 2016, there are glimpses of improvement till August 2017. However, the pace of growth is quite slow. The Pound is clearly seen to be struggling to reach where it used to be before.
The reasons for this drastic fall in the value of Pound is definitely Brexit. From the day of the referendum, the value is seen to be falling. There was increased volatility in the market for a few months.
The following are the major events that happened in the UK led to the volatility in the market:
1) The referendum for Brexit – The Pound fell by 3% after the early results of Brexit that showed that people had voted heavily for Brexit. This was the major cause for the volatility as well as the drop in the value of Pound.
2) Theresa May’s appointment – The Pound gained 2% on the day it was confirmed that Theresa May will be UK’s next Prime Minister. The market stabilized a little after that.
3) Declaration of a vote in parliament by the HC – The Pound took off in November 2016 when the High Court ruled that the British government could not begin the formal process to leave the European Union without first having a vote in parliament.
4) UK government’s final letter to leave EU – The Pound fell a little in March 2017 when the UK government signed the letter triggering Article 50 of the European Commission, officially started a two-year negotiation period for Britain’s exit from the EU.
As on September 2017, the Pound stands at 1.34 USD. No doubt the Pound has improved after Brexit, still the improvement it not up to mark. The Pound is still struggling to gain.
By Ria Vaghela (Market Analyst intern at Qrius and FYBMS student at Narsee Monjee College of Commerce and Economics)