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What will the future hold for the pound post Brexit?

 

May 22, 2019 (Investorideas.com Newswire) In the (almost) three years since the infamous Brexit referendum of June 2016, the graph of Sterling's performance on the currency markets has essentially been a pretty accurate record of media headlines at any given point in time. This is likely to be the case into the near future as people try to work out what, exactly, Brexit will mean for the pound. Here are three predictions.

Currency fluctuations could be par for the course over the next five months

To be more specific, currency fluctuations are par for the course at any time. However the reason major currencies such as the pound are often referred to as "stable currencies" is because they tend to fluctuate within very limited parameters, rather than surging upwards and plummeting downwards as unstable currencies, by definition, have a habit of doing.

At this point in time, it's way too early to be concerned about the pound becoming a highly unstable currency, but it is realistic to assume that its value is going to bounce around rather more than usual and so those who need regular access to another currency might want to look at making transfers when the exchange rate is at its most favourable and building up their alternative currency reserves as a hedge against the pound hitting any major lows, however brief they might be.

In the short term, the nature of Brexit will almost certainly determine the value of the pound

If there was a prize for stating the obvious, that headline would be a definite contender, however it is a reality and as such is worth keeping in mind at all times.

Possibly the single, most important point to take away is that if you want or need to make payments in a different currency, for example, for an overseas property investment, then you might want to think seriously about getting ahead of the curve and building up a currency reserve now so that as a minimum you buy yourself some breathing space in the event of a hard Brexit causing the pound to drop significantly in value, even if only for a short time.

This may be a very unwelcome comment but remember that it will take little short of a miracle for Brexit to be signed and sealed (if not delivered) before the European elections and the result of those elections is almost certainly going to have an impact on the value of the pound.

Likewise even the prospect of a second referendum is likely to reverberate through the currency markets (and at this point, we have to add, that a second referendum may produce the same result and it is therefore recommended to keep this in mind when taking any decisions).

Over the medium to long term, the currency market will readjust.

Possibly the worst aspect of Brexit is the uncertainty it is causing. Once there is a clear direction for the future, the currency markets will adjust to it. While it is entirely possible that Brexit will make the pound weaker, this is not, in and of itself, all bad news (for example it encourages inbound tourism) and it is always possible that once the dust settles and the UK gets back on its feet (as it has a history of doing) that the pound will strengthen again.

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