Brexit’s Impact On The Forex Market


The commotion over the United Kingdom’s decision to leave the European Union (a move known as the “Brexit”) has finally died down, but a little more than a year ago he whole world watched while the UK prepared for a referendum on the decision. There were a lot of political interests in the process, but it was the potential economic impact that drove much of the discussion both in the UK and around the world.

Leading up to the Brexit referendum, forecasts for the British economy in the event that the nation left the EU were murky at best. These forecasts generally took the full spectrum of the UK economy into account including jobs, GDP, and the housing market. Predictions in these areas were generally fairly grim, but with the British pound, the key was uncertainty. No one was sure what to suggest as far as the pound was concerned and where it would be situated in forex markets, because this would depend upon the effects in other economic areas.

Also of note is that financial predictors still didn’t expect the Brexit to win the vote. As people all over the world tuned in for the latest Brexit news and made their predictions about what was to come, the referendum became one of the most actively wagered upon non-sporting events in history. Even with all that activity, the final vote in favor of Brexit took the bookmakers by surprise. Despite late-stage polling that indicated an exit from the EU was a real possibility, the markets had indicated it was unlikely.

Now we find ourselves living in a post-Brexit world. The referendum resulted in a decision to leave the EU, and that decision was officially ratified earlier this year. That means we’ve now moved past hypothetical projections about the potential financial impact, and into a stage of trying to make sense of early movements.

One article from March pointed out that the UK’s economy has grown more strongly than those of most developed countries in the time since the Brexit referendum. The financial doomsday many expected didn’t come to pass. However, the pound has still suffered even as the overall UK economy has improved. This is viewed in part as a correction from what many saw as unsustainable highs in the months leading up to the Brexit.

If anything, the pound has seen a slight uptick since the Brexit went into effect. There hasn’t been a major swing though, and it’s still a small sample size. The pound’s performance since November has been steady for the most part, which could mean the current range (between 1.15 and 1.18 EUR of late) might have some staying power.

The new variable to watch will be what happens with the second and final stage of the French election on May 7. Should upstart nationalist Marine Le Pen defeat her opponent (centrist newcomer Emmanuel Macron), the “Frexit” will become a real possibility. This would hold major implications for the euro, and also potentially the pound. For now the actual transition from the Brexit being planned to being implemented hasn’t had a particularly dramatic effect economy. Only time will tell the future ramifications of this decision.

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