Friday, 21 October 2016

Why has the pound lost ground against the dollar?

Since my post yesterday morning the pound has continued to lose ground against the U.S. dollar, with the GBP/USD cross now trading just above $1.2220.

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The pound has given up around half a cent against the dollar since midnight, with investors taking the view that Theresa May's hard Brexit approach is likely to hurt the UK economy.

GBP/USD graph

What would a hard Brexit mean for the pound?

If Theresa May and the UK government push ahead with their hardball approach it is likely to create even more uncertainty for the economy. The major concern for investors at the moment is that Theresa May looks like she wants to give up access to the single market in order to focus on immigration controls.

Giving up access to the single market could have disastrous consequences on the UK's financial sector, which is currently viewed as the financial hub of Europe and also makes up around 15% of the country's economic output.

The sector relies on the single market and its financial passports and giving up access could see companies leave the UK and head towards mainland Europe as they would be unable to trade freely.  This in turn would then cause a huge drop in investment flows that would then impact the UK's current account deficit.


How far could GBP/USD fall?

I still don't think we have seen the worst for GBP/USD yet. I for one would not be surprised if we saw the currency pair fall below $1.20 before the end of the year, and push towards $1.15 as we approach the government triggering Article 50.

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As a specialist in currency exchange, I have a wide range of tools at my disposal to help protect you against adverse market movements or target a rate of exchange that might not be currently available.

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