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The Spiraling Pound

Published on: 05/08/2016

As the Brexit drama still unfolds in the United Kingdom, its otherwise stable currency has gone in quite the plunge over the past month. The downward spiral of a journey the British pound is on has officially earned the UK currency a new terrible title – the worst performing currency in the world.
The title most recently held by the Argentinian peso shifted to the pound sterling in the political turmoil surrounding the referendum decision of the kingdom to part ways with the European Union, the world’s largest single market. The title is clearly ominous, but what does this mean for the pound exactly?

Currently the pound is trading at a 20-year low. Since the moment the results of the EU referendum in the UK became public the pound has fallen by 14% against the American dollar. If we look at the price movement in 2016 as a whole, that number is 12% – more than Argentina’s 11.7% plunge. This is quite meaningful, considering the UK hasn’t begun the leaving process yet, while Argentina has has it rough for a great many years.

Right now the English currency is trading in the vicinity of $1.30. As the United Kingdom still hasn’t triggered Article 50, thus committing to the Leave vote, the environment on the island is dominated by confusion. Analysts from Societe Generale expect the pound to keep on falling and have set a target of $1.23, CNN reports. Additionally, George Soros, the man behind the Black Wednesday of 1992 – another crash of the pound – expects values to go even below $1.20.

The cheap pound is good for outsiders, since it suddenly makes the UK a cheaper destination. It’s the reverse for Brits, who now find themselves facing increasingly more expensive goods and services from around the world.

Meanwhile, those of you following the stock markets may have noticed the United Kingdom is doing better on that front. The Bank of England decided on a massive stimulus to help ease the economic turmoil of the Brexit events by cutting interest rates dramatically. While this has caused stocks to go up higher than levels in 2015, it’s also driven the pound further down.

What are your expectations about the British currency? Let us know in the comments!

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