While the value of the pound may have continued to fluctuate since the Brexit referendum vote on June 23rd, 2016, it has largely traded within an ever-depreciating range during the subsequent four years.
This trend began the morning after the vote to leave was delivered, when the pound slumped to its lowest level since 1985 and the FTSE 100 shelved 8% off its total value.
In this post, we’ll look at how Brexit has continued to impact on the pound, while asking what the future could hold in-store for this asset?
The Pound so Far in 2020 – How Has it Fared?
In truth, the pound has generally declined against both the Euro and the US Dollar throughout 2020, particularly as a so-called “no-deal” Brexit becomes increasingly likely.
The uncertainty surrounding the ongoing negotiations has certainly caused the pound to weaken significantly over time, with the GBP/EUR pair losing 1.65% of its total value between August and September alone.
During the same period, the popular GBP/USD pairing declined by a whopping 3.11%, despite the fluctuating greenback and the pressures caused as a result of the high-value stimulus measures being discussed in Congress.
As we’ve entered December and the end of the transition period on the 31st of the month has fast approached, the pound has continued to lose ground against its major rivals, while avoiding the type of sharp and pronounced losses that some predicted would follow the increased likelihood of a no-deal Brexit.
Why is the Pound Continuing to Keep its Head Above Water?
This trend has been borne out by recent price movements, with the GBP/USD surprising many by breaking back above the resistance at 1.3400. Of course, this has much to do with the relative contraction of the greenback, but it also highlights the robust performance of the pound as the Brexit negotiations continue.
But what’s the primary factor behind this level of robustness? Well, Senior Market Analyst Jeffrey Halley from Oanda believes that this has much to do with the prevailing market outlook, which continues to price in “practically zero chance of a no-deal scenario” actually taking place.
We’ve also seen several leaks which suggest that both sides may have compromised in recent weeks, suggesting that a breakthrough may yet be made prior to deadline.
This has helped to temporarily drive the pound’s value higher at various junctures during December, despite its failure to shift outside of a narrow, 300-point range.
Of course, the future trajectory of the pound depends on the outcome of the negotiations, which are sure to come to an end by December 31st in lieu of an extension agreed by Parliament.
Make no mistake; a no-deal Brexit would cause the pound to crash to brand new lows, but for the time being it continues to hold its head above water as the market retains a positive outlook.