How Brexit Will Affect Currency Traders in 2019

The monumental Brexit has yielded political, cultural and also economic consequences. Here we explain how the UK’s vote to leave the EU has led to significant Brexit currency impacts like lower currency exchange rates and the British pound devaluation.

By now it’s hard not to be aware that the UK’s vote for Brexit on 23 June 2016 had a significant impact on the currency market. But with news of long-term lows for the sterling, record highs for stocks and arguments regarding whether or not the country is heading for a recession, it can be hard to ascertain exactly what is going on. Most people don’t need to know how well the UK economy is performing when sending money overseas; they just want to know what is affecting how much they’ll get.

So what impact has the Brexit vote had on currency transfers, why are the markets reacting the way they are and what looks set to happen in the future? Foreign exchange provider TorFX explains the Brexit’s important impact on currency rates.

How has the Brexit affected Pound Sterling exchange rates?

The pound has been consistently on the decline since the results of the referendum became clear on 23 June 2016. An initial sharp drop has been followed by several slumps and a persistent overall decline, leaving GBP to EUR -15 percent than pre-referendum levels and GB to USD and GBP to AUD down -17 percent immediately after the vote. This means people wanting to exchange pounds into other currencies are getting significantly less, while people wanting to buy pounds are finding the current levels particularly lucrative.

After the initial shock, the pound was further weakened by a series of unexpected political developments and poor data releases. Leading ‘Brexiter’ Boris Johnson cause a drop in the pound after surprisingly announcing that he would not run for Prime Minister after David Cameron’s resignation. A huge tumble in the UK’s purchasing manager indices – which measure activity in the manufacturing, construction and service sectors – sparked another sell-off. Plummeting consumer confidence, forecasts that sterling could hit parity against the euro, speculation that the government had no solid Brexit plan, warnings from international figureheads and worries that big businesses may move their operations out of the UK all combined to pressure the pound lower over the weeks following the referendum.

The tumbles have left the pound as the worst performing currency during the first half of 2016, beating even the currencies of places such as Venezuela, which is struggling with an estimated inflation rate of 700 percent.

EFFECTS OF BREXIT

1. Trade Transaction Costs Will Increase with New Tariffs on Exporters

The UK will have to leave the European Customs Union, which means a significant increase in controls over UK-manufactured goods crossing the European border and huge delays in administration formalities.

The BRC has predicted a 29% increase in food and beverages product prices imported from the EU and a 7% increase for non-food items, including clothing and textiles. Pricier imported goods will put a strain on consumer spending, affecting the economy on the whole. In addition, businesses that depend on EU-based raw materials and consumers will have to bear margin cuts. This will have significant repercussions on the global stock and forex markets.

2. GBP/USD Could Tumble Down

Currencies are always affected by trade balances. Britain’s current account deficit has been widening for some years now and Brexit will put a likely stop to the inflow of foreign capital. This means the UK would lose its position as being a prime investment location. What eventually will follow is a weakening of the pound sterling, to address the imbalance created. Experts are predicting similar downs for the British pound like what happened following the Brexit referendum. The GBP may go down as low, perhaps more to the tune of 1.20 against the USD.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.