eToro
By eToro
282 views

How long will Brexit keep the pound undervalued?

Sterling’s fall in recent years has been nothing if not dramatic. The triggering of Article 50 in March 2016 saw the pound finishing the year as the second worst performing mainstream currency on global markets and the cheapest in the G10.

Ever since, things have been pretty dire with sterling continuing the bear the brunt of the UK’s decision to leave the European Union.

With roughly a month left before the Brexit deadline, the only thing known for sure is that, as it stands, the pound will make imports pricier and exports more competitive.

Will Brexit push down on the pound indefinitely? Surely, you cry, the end is in sight and sterling’s return to grace is on the horizon?

The answer, however flippant, depends on the outcome of Prime Minister Theresa May’s negotiations and the subsequent parliamentary vote.

Market analysts appear confident that the UK will avoid crashing out of the EU with no deal in place, and this is itself will provide a confidence boost to the currency.

The ruling out of a no deal by MPs when they voted on amendments at the start of February was enough to give market analysts and traders a glimpse of a brighter future and take a directional view on sterling.

But Brits aren’t out of the woods yet and the rise of the UK’s currency lies in the form the resolution will take.


76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

If a deal is reached and passed by MPs in parliament, having some form of trade agreement and details on the movement of people will likely see a bounce in the pound.

So, too, would a Brexit U-turn – however remote a possibility Mrs May claims that to be. In fact, some economists have argued a 40% rise in the probability of a ‘no Brexit’ following the defeat of her initial deal in January 2019.

While this outcome would be career suicide for the Prime Minister, and set the cat amongst the pigeons when it comes to the British public, the pound could regain its strength as an element of certainty returns to the market.

There are, of course, several additional influencers on the currency that will also impact its performance during the year. Central bank decisions on interest rates, the cost of living and foreign investment in the UK. Not to mention the impact a general election would have, especially if the Conservative Party also faces a leadership campaign.

To sum up: trying to predict sterling’s reaction to the outcome of Brexit is impossible, particularly with so many hurdles left to overcome.

eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

282 views