The Impact of Brexit on International CurrenciesBrenda Whitman
When Brexit was first voted on in June of last year, the impact was immediate. As soon as the results were in, both the pound and the euro plummeted in value, and the dollar become stronger by comparison. But that was only the announcement of Britain’s intention to leave the EU. What will happen when it actually goes into effect? How will it impact their currencies, and ultimately ours?
The Pound’s Roller Coaster
Before the announcement of Brexit, the pound’s worth generally hovered around $1.50 in U.S. dollars, give or take. Then in June, it came crashing down to about $1.35. But that still wasn’t the end of it. In October, there was another major crash, sending its value down further.
Then in November and December, the value started to recover somewhat. This was following a UK Supreme Court ruling that Brexit couldn’t occur without first being voted on by parliament. This might not stop the process entirely, but it will at the very least delay it. The news of this development triggered a rally for the pound, which peaked at a little less than $1.30.
Then in January, another crash occurred, and the pound’s value dropped below $1.20. On some trading platforms, it even got as low as $1.13. This followed the news of an upcoming speech by Prime Minister Theresa May, and speculation over just how thoroughly she intends to sever ties with the EU. Again, it was merely the anticipation of the speech that triggered this drop.
In the meantime, the euro, which dropped below $1 following the initial Brexit announcement, has recovered somewhat. During the fall, it hovered between $1.10 and $1.15, and is currently around $1.05.
Possibilities for the Future
There are a number of factors which could contribute to the value of both the pound and the euro, both in the near future and in the long term. Who knows how many more crashes or rallies might be in store, before the two-year process of severing ties even begins? It seems we can look forward to volatility for both currencies for the foreseeable future.
This volatility in turn means that people are more reluctant to invest in either currency. As a result, more people are turning to the dollar and the yen, sending both of their values up. The problem is, this increased demand can overinflate their worth, turning both currencies into bubbles. They appear to be getting stronger, but what happens when the bubble bursts? It could increase our own currency’s volatility as well.
A crash of the dollar could have a significant impact on the average consumer as well. It increases the price of imported goods, thus raising prices and causing inflation.
Even though we don’t live in the UK, our economy is still directly affected by Brexit in a number of ways, from our currency to our stock market and more. Furthermore, there’s still a lot of uncertainty regarding how, exactly, the exit will take place. The details will be hammered out over the next two years (or more). In that time, who knows how many surprises will come up, or how they will impact us?
Given this international economic volatility, it’s now more important than ever to have a safe haven, to protect your savings against what’s to come. There are a number of possibilities for the future, and many of them can have a serious negative impact on our currency and economy. Don’t let the uncertainty of the UK’s future derail your own.