Well, that was a quite a month! Results of the UK Brexit referendum caused many to celebrate and many others to pick their jaws up from the floor. The initial impact was felt around the globe as the UK’s European neighbours and economies worldwide woke up to the news that UK voters had set the country on the rocky path to separation from the European Union.
Financial markets suffered immediate losses and the value of the Pound plummeted to 31-year lows against the United States Dollar. Perhaps of more immediate importance to UK nationals living and working in Europe was the dive in the Pound/Euro exchange rate from 1.31 on the eve of the vote, to the low 1.16’s over the following few days, as the ensuing uncertainty sunk in.
Resignations from key political figures followed like falling dominoes. Speculation of how things might pan out, not just in the UK but also within the European Union, was rife. Certainly, one thing the financial markets do not like is uncertainty. This is what leads to volatility between the major currencies. So where are things headed now?
At the time of publication, the UK has a new Prime Minister and Cabinet. This rather rapid procedural movement has injected a degree of credibility into the markets, with a corresponding recovery of the Pound/Euro rate to around 1.20 and the Pound/US Dollar to 1.32 (yet a long way off the 1.49 level immediately before the referendum).
Can we expect to see a return in the near future to pre-Brexit levels? It’s extremely unlikely for quite a while; so, we have to expect a bumpy ride in the meantime. There is an upside for many people, though. The weakness in Sterling is good news for those wishing to buy goods and services in the UK – great for those buying property and boats – and of course for businesses importing products out of the UK.
This article was updated on the 20th of July, 2016.