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Pound Plummets after Brexit Talks Stall

Published on: 09/25/18 10:15 AM

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Category: Currency, Forex, Latest News, Market, Trade, Trading, World News

The British pound sunk two cents down against the dollar on Friday after Prime Minister Theresa May announced that the Brexit talks with the European Union had hit a snag. She said that the talks were not bearing any fruits and called for new proposals.



 

Criticism from the British opposition


May has in the past few months faced criticism from the British opposition MPs over how she has handled the Brexit talks. She said that the European Union must counter her Brexit proposals with new alternatives if a solution was to be reached. The pound had enjoyed stability for the past two months with the hopes of a positive Brexit deal. However, the turnout of events on Friday was a painful reminder to investors about the pound’s volatility to the Brexit news. The bleak picture presented by the Brexit negotiations coupled with warnings from EU officials on Thursday that (Prime Minister May must come clear on the Irish border issue) wiped out all that the pound had gained in the week.

Chief Economist at Standard Bank, Sarah Hewin, said that the Brexit negotiations have no doubt affected the stability of the Pound. “At the moment any news from the Brexit negotiations in one way or the other determines how the pound shifts,” she said. The pound dropped as low as $1.3050 and was even lower when it began today morning. Meanwhile, investors are still keeping an eye on which direction the Brexit negotiations will take. Against the Euro, the sterling also stumbled 1.3 to 89.95 whereas gains of a 10-year British government bond dropped to 1.55% down from 3.4 %.



The Irish effect


Economic experts warn that coming out without a Brexit deal would greatly affect Britain’s economy. However, some lawmakers have already started proposing for a second referendum rather than dragging on with negotiations. Nonetheless, most Forex Brokers analysts are confident that the two sides will settle into some kind of an agreement. This is considering the fact that both London and Brussels will be on the losing side if Britain exists the block without a plan for trade in March 2019. Investors, on the other hand, have been quick to hedge against several weaknesses in the currency as a precautionary measure. Most of them view the Brexit situation as precarious and no one would want to take chances.

Expectations


Contrary to many people’s expectations, higher inflation numbers, and retail sales showed earlier in the week buoyed the pound before the emergence of the Brexit news on Friday. For now, everyone is keenly following the Brexit negotiations before making any bold move. A Brexit deal will be good news to most currency investors, but anything short of that will be a blow to many.