In the immediate aftermath of the Brexit vote, the GBP/USD currency pair dropped from approximately 1.49 on Thursday, 23 June to as low as 1.3240 on Friday, 24 June. The sharp depreciation of the GBP/USD was precipitated by mounting fears that the UK’s departure from the EU would bring about mayhem in UK and global financial markets. However, the cool head of Bank of England governor, Mark Carney helped to alleviate market concerns to a degree with promises of up to £250 billion in assistance if the sterling began to buckle under pressure.
If we take a look at the performance of the GBP/USD currency pair between 1981 and 2016, some interesting trends emerge. For example, in February 1985 the GBP was trading at 1.05 to the greenback, and at 2.10 to the dollar in November 2007. Shortly after that, the global financial crisis struck and the GBP plunged, but not as low as it is currently trading against the greenback on June 24, 2016 when it hit 1.36. There is no doubt that global financial markets, and especially currency markets have been hard-hit by the decision made by Britons. The 52%/48% majority to the Brexit campaign proved devastating to global equities markets and currency markets.
Performance of the GBP/USD Currency Pair
The current plunge in the value of the GBP/USD currency pair is its worst in 31 years, and the biggest fall in the history of the currency pair. Some of the biggest losers on the day were UK banks, notably Lloyds and Barclays which shed 30% overall with losses of £130 billion. That the sterling was able to recover slightly was laudable, and it closed around the $1.3684 level by the end of the day on Friday. The 52-week trading range of the pair is 1.5817 on the high end and 1.3684 on the low end.
Bank of England intervention is always a possibility, and this could be done in one of two ways: raising interest rates to generate demand for the GBP, or utilising foreign currency to purchase GBP. The downside to raising interest rates comes in the form of higher costs for loans and mortgage repayments. As it stands, a weaker GBP and diminished prospects for the UK economy are putting pressure on property price growth. The problem with what has happened is the uncertainty that looms. Many economists are anticipating a decline in FDI (foreign direct investment) and sharp job losses across the board.
