Will the Pound Stabilize After October?

When new Prime Minister Boris Johnson met his French counterpart Emmanuel Macron in Paris for Brexit talks earlier this week, the value of the pound spiked slightly amid discussion of the so-called “withdrawal agreement” being altered.

However, it was only later that reports relayed Macron’s consistent stance that the Northern Ireland backstop was “indispensable”, which contrasted sharply with Johnson’s vague negotiating position and only seemed to reaffirm the likelihood of a no-deal Brexit.

This sent the value of the pound plunging once again, as the GBP continued to trade in the narrow range that has plagued it since 2016. In this post, we’ll look at the recent history of the pound, whilst asking whether it will stabilize after the UK’s exit on October 31^st.

Charting the Course of the Pound Since 2016

When the UK electorate surprisingly decided to leave the EU on June 23^rd, 2016, voters sent the value of the pound spiraling to its largest intra-day collapse in 30 years.

It even plunged to $1.32 against the U.S. Dollar, and despite experiencing a slight rally as the dust settled, the following October saw even greater depreciation as PM Theresa May confirmed that the UK would evoke Article 50 in March 2017.

At this stage, sterling sunk to a three-year low of €1.11 against the Euro, while experiencing a further slump against the dollar to end the day at $1.18.

Several fluctuations have followed in the two-and-a-half years since, with the value of the pound continuing to fluctuate within a relatively narrow range.

However, it has continued to slide as the UK inches closer towards a no-deal exit, against the backdrop of Boris Johnson’s premiership and the new PM’s unrealistic negotiating position.

In June, the pound recorded its ninth consecutive weekly loss against the Euro, whilst also plunging against the greenback.

How Will the Pound Fare Post-Brexit?

At present, the UK is scheduled to leave the EU on October 31^st, with the legal default being to enforce this eventually with or without a withdrawal agreement in place.

This is why the value of the pound is continuing to slide only to the delight of spread betting enthusiasts, as the new government’s entrenched position on the Irish border issue creating a red line that makes any withdrawal agreement impossible to achieve in the foreseeable future.

At the same time, various EU member states are adamant that no further extensions will be agreed with the UK, making it increasingly likely that we’ll sever all ties with the single bloc for real on Halloween.

So, far from stabilizing in October and the final quarter of 2019, recent trends suggest that the pound’s value will plummet to all-too familiar lows, before rebounding slightly as the UK economy makes provisions for its new reality.

However, the short and medium-term outlook for sterling remains incredibly bleak, as a no-deal Brexit will see the UK incur significant GDP loss, declining exports and economic contraction that could take months to recover from.