Why is the pound now so low?
Since May, when the besieged prime minister announced he would withdraw, Britain's prospect of disintegration from the European Union – leaving it unconditional for divorce conditions – began to appear more likely. Many in the United Kingdom fear that the so-called Brexit will not create chaos, and the British Budget Liability Office said a week that it would triggered a 30 billion pound hit for public finances.
On Thursday, British lawmakers adopted a measure aimed at preventing the next prime minister from suspending Parliament and imposing Brexit. (Mr. Johnson hinted he could take such a step.) However, uncertainty over the next few months is likely to cut the pound.
The pound is about 15% lower than before the vote leaves. But it is still above the lowest levels that hit in January 2017 when Ms. May proposed Britain to leave the UK. without rigid agreements. The prospect of a loss of duty-free access to the single European markets and the continuing uncertainty surrounding the UK's departure conditions forced the currency to collapse. Last week, analysts at Morgan Stanley even raised the question that if Britain breaks out of the European Union, the pound can reach parity against the dollar.
Why Sterling Are Barometer for Brexit?
Although the pound is perceived as a symbol of the country's independence, it is sometimes linked to international events.
Plows in the value of sterling have cast long shadows. The financial crisis in 2008 made him collapse. The day Britain had to withdraw the pound from the European Monetary Mechanism in 1992 is called the Black Wednesday. In 1976, Britain had to ask the International Monetary Fund for a loan after the pound fell below $ 2.
At the same time, many companies of the British Stock Index, FTSE 100, are making a lot of money abroad. So their stocks rise when the pound gets weaker, because the money they make is worth more in pounds. With all the uncertainty about Brexit, Britain feels less stable. The pound reflects this, complicating the work of forex analysts. "In the past, people would have guessed that the UK government is relatively stable," said Lee Hardman, a currency analyst at MUFG, the Japanese bank. But events like Brexit and the election of President Trump have created much greater global uncertainty.
"Brex-risk is a dominant factor," he said.