Why is Brexit bad for the Pound

[fd1]

The Pound has taken quite a pounding since Brexit. On financial news websites, I have not really read a good explanation on why exactly Brexit is bad for the Pound. Mostly, it is about the Pound falling hard thanks to Brexit. But why?

Can someone wiser on this forum enlighten?

 

[Oscar Reed]

The Pound has taken quite a pounding since Brexit. On financial news websites, I have no really read a good explanation on why exactly Brexit is bad for the Pound. Mostly, it is about the Pound falling hard thanks to Brexit. But why?

Can someone wiser on this forum enlighten?

Ask @Atilla

He lives and breathes it.

 

[Splitlink]

The Pound has taken quite a pounding since Brexit. On financial news websites, I have not really read a good explanation on why exactly Brexit is bad for the Pound. Mostly, it is about the Pound falling hard thanks to Brexit. But why?

Can someone wiser on this forum enlighten?

My tuppence worth is that all currencies are subject to confidence, in the world currencies market.

All countries are up to their eyeballs in debt and they borrow money on their ability to pay it back. When their trading status changes, so does the risk on that currency. The interest will go up or down to reflect world confidence.

The UK has changed its status by leaving a trading block and having to renegotiate with it, in addition to having to look for its own markets, worldwide
and so bondholders are buying something else that is more attractive.

Hope that helps.

 

[metrader]

I should think it's to do with EU asking UK to accept free movement of people in order to keep tariff-free trade deal. I can't see it happening, nor can the speculators.

 

[tomorton]

GBP has long been a safe haven currency, especially for those heavily into EUR. The UK had by far the strongest economy that was also coupled with its own local currency in Europe, and this was growing at the fastest rate in the G7. The political uncertainty over the terms of Brexit now cancel that advantage for the GBP.

To some extent, internal political uncertainty is also increased, with a governing party that is split and not obviously sure of how to proceed, plus more widely separated leftist and rightist opposition parties than for many years in UK history.

On top of this, we are going to be moving from a free trade co-operative situation to a competitive trade situation, with the possibility of tariffs and restricted movement of labour which UK industry currently benefits from. This suggests slower economic growth and points attention back to our national debt level. Even for risk-accepting investments, the UK must now be seen as less attractive than it was for the foreseeable future.

 

[Signalcalc]

I only see an acceleration in a fall that started at the financial crisis that then ranged for 4-5 years before starting to decline again from mid- 2014, it doesn't really look like Brexit has had much to do with it other than a short term drop that has reached its lower extreme and is now more likely to revert to mean.

 

[csc2009]

After Theresa May suggesting Brexit negotiations start within the next six months. Bring back the painful reminder of economic and political uncertainty, traders would think twice of holding long-GBP positions.

 

[tomorton]

I only see an acceleration in a fall that started at the financial crisis that then ranged for 4-5 years before starting to decline again from mid- 2014, it doesn't really look like Brexit has had much to do with it other than a short term drop that has reached its lower extreme and is now more likely to revert to mean.

That's a fair observation. Its ironic how as traders we focus on dramatic news events that we think will and even have changed the world, but more often they don't. The Brexit vote was an earthquake in UK and European politics, but GBP/USD was indeed already a strong sell. EUR/GBP's rise had run into consolidation but certainly wasn't a bear.

On a wider scale, look back at the Dow chart from 1995 or over the 15 years 1995-2010. Without using the time scale, pinpoint 9/11 on price alone: I bet its not where you thought it should be.

 

[forker]

Personally, the disconnect between the fundamentals in the UK and where the ccy is valued represents a short term opportunity. I think 1.3 to the $ is not an unrealistic target. Timing is key but at the same time the continued devaluation represents a higher risk than a slight correction. I'd probably look at trading it against another weak currency however as there is a looming rate hike in the $ so potentially cad

 

[forker]

Personally, the disconnect between the fundamentals in the UK and where the ccy is valued represents a short term opportunity. I think 1.3 to the $ is not an unrealistic target. Timing is key but at the same time the continued devaluation represents a higher risk than a slight correction. I'd probably look at trading it against another weak currency however as there is a looming rate hike in the $ so potentially cad

Target of 1.66 against cad

 

[Dian]

How low pound will go? Can we find strong base for it?

Kind regards

 

[tomorton]

All-time low looks like 1.052 in February 1985. But I wouldn't put money on the pound staying above parity.

 

[Dian]

All-time low looks like 1.052 in February 1985. But I wouldn't put money on the pound staying above parity.

Tomorton

Thank you for the response.

 

[Dian]

The pound will come back. The question is when? Is it time to become contrarian and buy pound? How about doing some following on the pound to fine out its sudden reversal? As Euro has more problems than UK, Isn’t it time to stay with bullish on pound over EURO?

 

[tomorton]

Dian, we can't know for sure how long it will take before the £ comes back or at what price, but maybe we can see why it should. What would cause it to stop falling? If that's not known, and seen, why wouldn't it continue to fall right after you got in long?

 

[Dian]

Dian, we can't know for sure how long it will take before the £ comes back or at what price, but maybe we can see why it should. What would cause it to stop falling? If that's not known, and seen, why wouldn't it continue to fall right after you got in long?

Thank you very much for your kind response.

Kind regards