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May 08, 2019

Why do Brokers Believe the Brexit will Hurt the Pound?

As the referendum on the UK's abandonment deal from the European Union is in the picture, the situation is expected to be a lot more volatile. That’s a big story! A complex picture, though. First things first, why is Britain leaving the European Union (an economic and political partnership involving 28 European countries)?

On 23 June 2016, Thursday, a referendum was held to decide whether the UK should leave or stay in the European Union. As the vote declared, leave won by 51.9% to 48.1%. With more than 30 million people voting, the referendum turnout was 71.8%. From the whole scenario, the bitter truth as published by the government outlines the economic costs associated with a range of Brexit scenarios. It’s official! The Brexit will be bad for the economy. Let’s see how and what will be the effect?

Brexit Impact on the Economy

The threat is appearing for the currency: Britains faltering economy. The Pound has fallen after the referendum - and is currently about 10% down against the dollar, and 10%-15% down against the euro.

Luis de Guindos, the European Central Bank (E.C.B.) vice president stated that markets still aren’t being valued for a hard Brexit opportunity. The E.C.B. vice president spoke at a European Parliamentary discussion in which he spoke to lawmakers on the subject of market pricing in case of a hard Brexit. “We are living in a moment of the slowdown of the global and the European economy.”

Since the Brexit vote, people traveling overseas from the UK have found their pound buys less. Brokers are fearful of the fall. The fall in the pound means exports get a boost as UK goods will be inexpensive to buy in other countries, but some imported goods could get more expensive. The increase in the figure for the year to December 2018 was 2%, above the target level. Lately, the market has been grinding back and forth. Brexit is going to be an issue and create a lot of hustle.

The British pound fell hard to crashing into the 1.30 level. That is an area that on shorter-term charts show that there is support down to the 1.2950 level. Below the 1.2950 level, the market will very likely reach down towards the 100% Fibonacci retracement level.

The government said that in a situation of no-deal Brexit, the UK economy is 7.7% smaller 15 years after Brexit. The damage would be even greater if net departure from the European Union dropped to zero, the government said.

Though, in case of messy Brexit, there are some key sectors of the economy that would be hit majorly. Auto, chemicals and pharmaceutical industries, which trade heavily with the European Union, would be more than 20% smaller over the long run. And if there is a disorderly Brexit, the Bank of England warned that this would cause the UK economy to contract by 8%. The value of the pound would slump by as much as 25% and home prices could plummet 30%.

So is Brexit Definitely Happening?

As of the above facts and estimations, the UK is expected to leave the European Union on 31 October 2019. If the UK and EU approve the withdrawal agreement early, the UK will leave even before, owing to a great hurt to the economy.

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