Currency News: A Happy New Year for the British Pound?

Currency News

Brexit Woes Continue to Affect British Pound Amidst Uncertainty 

Prime Minister of the United Kingdom, Theresa May, announced back in October that by the end of March 2017 she will enact Article 50 of the Lisbon Treaty. The article is the start of a two-year negotiation and will officially begin the Brexit or “British Exit” process. With this very announcement, the British pound fell to its three-year low against the euro. Well now that 2017 is here, do we have a better picture of how the pound sterling will be affected?

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We are already aware of the 15% plunge the pound experienced in June of 2016, following the referendum in which the people voted to secede from the European Union. But the British pound slowly came back from its six and a half year low of £1.10 compared to the euro towards the end of the year. It was predicted that after the vote, due to high uncertainty, the UK would fall into a recession. According to Lloyd’s Bank, the economy didn’t just miss the recession, the UK economy accelerated its activity in the second half of 2016. Post-Brexit, their economy expanded at a faster pace and led to their final quarter being their strongest. Even with this, the pound sterling is still the third most undervalued currency. Today, the pound holds at £1.16 to the euro.

Even with the pounds’ front foot forward and inching recovery, uncertainty still looms for the currency. With the Prime Ministers’ announcement, the pound faces a larger risk and may decrease around the time Article 50 is enacted in March. Questions around Article 50 remain, will the UK continue to have access to the European single market and restrict free movement of EU workers? Will they take back control of their immigration and lose their benefits in the single markets? Following the discussions, the pound will most likely will regain its fall after decisions will be more transparent. Prime Minister May has already come out and stated, “We will do what independent, sovereign countries do. We will decide for ourselves how we control immigration. And we will be free to pass our own laws. (Telegraph News)” This being said, there still holds much uncertainty for the UK and the pound, especially in the next two years. The UK is expected to leave the European Union in mid 2019. The pound sterling may still prosper in the future, but due to the risk that revolves around the exit and the European market, it will most likely scare off investors.

Other events that will likely impact the pound sterling include other Eurozone elections, such as the local UK elections, the French presidential elections, and the German state elections. The elections across Europe may further drive decisions leading to an unstable Europe. Other unstable countries in the European Union may influence the power of the pound.

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