Has Sterling Overreacted to Brexit?

One of the most tangible consequences of the U.K.’s June vote to quit the European Union was the immediate collapse in the value of the pound. The combination of a huge political upset — which saw the resignation of a national leader — and the prospect of a wounded economy drove sterling lower on the foreign exchange market in the immediate aftermath of the vote. Six months on, however, the reasons for the currency’s depreciation seem less compelling.

The chart below shows where the pound is currently trading compared with levels just prior to the plebiscite. The rally from the October lows hasn’t pared its losses by much; the currency is still down significantly. But at least some of the reasoning for traders and investors to be bearish on the pound have dissipated since then.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.