It wasn’t that long ago (2007) when owners of US dollars would have to pay two greenbacks to buy one British pound. Since then we have seen the purchasing power of sterling slowly ebb away, compounded by the announcement of the UK’s Brexit vote. This month we consider the currency markets and pay special attention to the future of the pound. The flash crash of Friday last week makes such a review all the more pertinent.
On 2nd October Theresa May announced that the UK would officially begin its separation from the EU in March 2017. Over the course of the following week sterling fell around 3.9% versus the dollar (at the time of writing), which included an intra-day loss of c.6%. This tumble in sterling is an indication of investors’ caution over the prospects for the UK economy as a result of Brexit but rather contradictorily it has been the fillip to drive the FTSE back to all-time highs.