Pound has already been named as the worst performing currency after the Brexit news and things seem to be getting worse. While some blame the lack of clarity amongst the government, some still can’t get over Brexit. “The overnight plunge in the British pound is an example of a once-rare event that may soon become more frequent in currency markets,” several analysts say. And wider volatility may follow.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said he’s seen only about 10 instances of such sharp moves in a currency in the last few decades. But similar market gyrations could become more frequent among important currencies, given the pound’s two large drops so far this year against the dollar, and the Swiss franc’s surge against the dollar in January 2015 after the Swiss National Bank abandoned its euro peg.
“This is part of the new normal,” he said on CNBC.
With the significant fall in pound over the last 2 weeks, investors, experts, and pundits are saying that this is not just a flash crash, but it’s the beginning of global rates starting to rise, European banks getting weaker and the global economy is just a hit away. “Sterling has been under pressure all week amid renewed focus on the June 23 vote by the U.K. to leave the European Union, which knocked the pound from roughly $1.50 to around $1.30,” reported Bloomberg.
Sterling plunged to its lowest level in 31 years against the dollar after briefly tumbling over 6% in Asian trade. British newspaper, ‘The Independent‘ were soon to report on this situation quoting, “The pound has been very sensitive to politics lately as fears over the consequences of a hard Brexit haunt investor attraction towards the currency.”
Exports have been boosted looking at the fall in price of the pound, but prices of imported goods have seen a terrible increase which is making it harder for people to buy the new iPhone 7, travel abroad because of the increase in fuel prices and it’s making it harder for the government to borrow, putting a squeeze on locals living abroad. “The U.K. economy has proved more resilient than expected in the wake of the vote to leave the EU, with the sharp fall in the value of the pound and a big injection of money from the Bank of England helping limit the fallout,” reported CNN Money with their work on the demolishing flash crash of the pound.
As far as analysts go in predicting future prices of the pound, they think that pound and Britain have dark days ahead of them as their prices will be in parity with the Euro, which means that the pound should still fall about 10-12% from it’s current price and flash fall that it’s seen on late Friday and early Monday in American and Asian markets.
With the future of pound looking in doubt, it’ll be a crucial time in determining where the currency goes from this stage especially in the coming month. Pundits say that it’ll see a further fall and will come in parity with the Euro or will it stabilize and make the country’s borrowing capabilities and investing power stronger?