British Pound Dives on Brexit Fears

-edited

Now that Brexit reality has finally set in, the British Pound has been in a free fall.

For the past couple years, the British Pound rallied every time it appeared Theresa May might get her deal though or there would be an extension.

Today, vs the US dollar, the Pound fell to its Lowest Level Since 2016.

The Wall Street Journal reports Pound Pushed Toward Historic Low as Investors Worry Over Brexit.

The British pound slipped closer to its lowest sustained level against the dollar in more than 34 years on rising investor fears of economic disruption if the U.K. quits the European Union without a deal to smooth its exit.

Two days of heavy selling pushed the currency as low as $1.2091 on Tuesday, according to FactSet. That is still above its lowest level since the Brexit vote, when it finished European trading hours at $1.2065 in January 2017. If it breaches that level, the pound would be at its weakest against the dollar since early 1985, when it almost reached parity.

“People had thought that Boris Johnson may soften his stance once he was in power, but now the market is realizing that a no-deal Brexit is a very real possibility,” said Seema Shah, chief strategist at Principal Global Investors in London.

Mr. Johnson won a vote among members of the U.K.’s ruling Conservative Party to become leader, subsequently replacing Theresa May as prime minister last week. He has since named a leadership team packed with politicians determined to get out of the EU by the next deadline of Oct. 31 by whatever means necessary.

Reality Sets In

Reality has finally set it.

The UK Prepares for No Deal: Attorney General Says Early Elections Can't Stop Brexit

From the perspective of the UK and EU, the pound vs the Euro is far more important.

Pound vs Euro

Since April 27, the pound has fallen 7.3% vs the Euro.

Pound Rising and Falling on Brexit News

The pound's major free fall started in 2014 before the referendum and has been trading in a Brexit news range since.

The pound is now testing the lows hit several times in the past three years.

Mike "Mish" Shedlock

Comments (33)
No. 1-4
avidremainer
avidremainer

If this is the reaction to no deal what happens when MR Market realises that the UK current account deficit makes the UK model unsustainable? We are not America, we can't run deficits sine die. Sooner or later the rest of the world will make the UK live within its means.

Tater-Man
Tater-Man

When passengers first get in, the lifeboat always appears less comfortable than the sinking ship. Smart people are heading toward the life boats, but initially a tiny life boat looks scary compared to the size of the sinking ship. But the ship continues to sink, and after a little while the lifeboat looks a heck of a lot better.

The EU is collapsing, with or without UK.

That is what the forex rate is telling us. We are scared piling into the tiny life boat in the middle of the big ocean. But we know it must be done, the EU ship is sinking.

Greggg
Greggg

A cheaper British Pound makes trade with Britain more attractive.

Maximus_Minimus
Maximus_Minimus

Looks like UK will be the first country to experience that central banking nirvana: out-of-control inflation, since it runs huge trade deficits. So there will be a model to follow...