Following the political turbulence of the past week, the pound has finally stabilised after experiencing the worst fall in two years.
Brexit Deal Turmoil
Prime Minister Theresa May’s announcement of her Brexit plan resulted in the crumbling of the cabinet support she claimed to have, with the resignations of Dominic Raab and Esther McVey.
As a result, UK-focused shares (especially in banks and housebuilders) saw sharp declines, and the pound sterling dropped by almost 2% against the dollar and euro. This has been measured as the highest volatility since the referendum to leave the EU two years ago, where the pound fell by a massive 9.1% against the dollar.
Although the resignations have ceased, experts believe that this may only be a short relief.
Strategist Ulrich Leuchtmannan at Commerzbank warned of a self-intensifying spiral “as long as ‘no deal’ remains likely”.
Senior analyst Mr Laith Khalaf at Hargreaves Lansdown agreed, stating that “every time we see a likelihood of a bad Brexit risk… the currency sells off.”
The CIO of CCLA Investment Management, James Bevan, highlighted some “interesting fundamentals” that currently affect the pound. He suggested that the pound was less attractive to investors due to the slower economic growth in the country compared to higher interest rates in other global markets such as the US and EU.
This is why housebuilders and banks were particularly affected, as they are “heavily exposed to the UK economy”, and as such have been labelled by some analysts as “Brexit beasts”.
Calm Before The Storm
Rolls Royce CEO Warren East has urged politicians to back May’s plan, claiming that time was running out and that “any deal is better than no deal”.