Has Sterling Overreacted to Brexit?

January 4, 2017 Share Print 0

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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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA

Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.