The pound came under considerable pressure at the start of this week’s session as renewed Brexit uncertainty weighed on the markets.
A lot has happened in those two years, with a new Prime Minister, a general election and a number of Brexit legal challenges further complicating the already difficult task of untangling the UK from the European Union.
Of course this has all had a dramatic impact on exchange rates as well, with the pound seeing significant movement over the last 24 months as Brexit developments came to dominate sentiment.
Let’s look at just how the pound has moved over the last two years.
2016The vote to leave the EU has a very immediate and dramatic impact on the GBP exchange rate, with the pound plummeting to a 30-year low against the US dollar as markets digested the decision, as well as the news that David Cameron would be stepping down as Prime Minister.
Cameron would eventually be replaced by the Home Secretary, Theresa May, granting some brief relief for Sterling in mid-July.
However the next few months were marked by the pound’s continued decline as markets became increasingly unnerved by the possible consequences Brexit would have on the UK economy. Questions of whether it would be a ‘soft Brexit’ or ‘hard Brexit’ began to emerge, with May’s oft repeated ‘Brexit means Brexit’ offering little clarity to markets.
The decline in GBP culminated in a ‘flash crash’ in October, which saw Sterling plunge over 6% to a new 31-year low. At the time some economists even predicted parity for GBP/EUR by the end of the year as it dropped below €1.10.
The pound closed out 2016 slightly up from the lows struck in October as the High Court ruled that triggering Brexit would require a Parliamentary vote following a case brought by private citizen Gina Miller.
2017Sterling sentiment was mixed at the start of 2017, with reports the UK would seek to leave the single market briefly driving GBP/USD down to $1.20 in mid-January.
The pound then began the road to recovery as Theresa May brought some much-needed clarity to the Brexit process, outlining her key aims for Brexit and announcing that the UK will activate Article 50 at the end of March, triggering two years of formal negotiations.
The GBP exchange rate spiked in April as Theresa May called a snap election, with hopes that a landslide victory for the Conservatives would grant the PM a greater mandate in pursuing her vision for Brexit.
However a strong performance from Labour resulted in the election ending in a hung Parliament. Theresa May was forced to create a pact with the Democratic Unionist Party (DUP) in Northern Ireland, in order to prop up her government, causing Sterling to plummet once again.
Markets continued to shun the pound throughout the summer, with GBP/EUR striking as low as €1.07 as investors bemoaned the apparent lack of progress being made in Brexit negotiations.
The GBP exchange rate mounted a recovery in September, partly due to another speech by May offering further Brexit clarity, but mostly due to the anticipation of the Bank of England’s first rate hike in a decade.
2017 closed with the UK government having finally struck a deal with the EU over its exit agreement. Sterling rose on hopes it would allow trade discussions to finally get underway.
2018 and beyondThe pound traded robustly at the start of the year, with Brexit taking a backseat as markets focused on the sharp fall in the US dollar.
GBP investors welcomed an agreement with Europe in March, granting the UK a post-Brexit ‘transition period’ and providing UK businesses with extra time to prepare for Britain’s exit from the EU.
Sterling rocketed to a post-Brexit high against the US dollar in April, striking £1.43 as markets bet on a BoE rate hike in May.
However the pound swiftly fell back when the BoE indicated that weak growth in the first quarter and ongoing Brexit uncertainty would prevent a hike in the first half of the year.
The second anniversary of the Brexit vote was marked by the government winning a vote to pass its EU withdrawal bill, lifting Sterling sentiment on hopes it would help to speed up negotiations.
Looking forward, If you were hoping for some more stability in the pound in the coming months it’s likely you will be left disappointed.
It has been just a couple of weeks since the second anniversary, and we have seen Theresa May and her cabinet finally hammer out a Brexit blueprint only to be met by the resignation of two senior ministers, which prompted some dramatic swings in the GBP exchange rate.
With this volatility potentially becoming more pronounced as we near the actual date of Brexit, if you are considering making a GBP transfer you may want to consider discussing your transfer options with one of Currencies Direct’s friendly currency experts.
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