In the aftermath of the Brexit vote, when U.K. citizens opted to leave the European Union back in June 2016, the British pound witnessed the largest single intraday drop against the dollar in its entire trading history.
But since that low-point, the GBP has been steadily recovering. Specifically, the pound gained 9.5% versus the greenback and 4.3% against the euro EUR in 2017. In that same year, U.K. Prime Minister Theresa May triggered Article 50, beginning a process that will culminate in the country’s exit on March 29, 2019. U.K.’s grand exit was officially underway.
However, the sterling never fully recovered the huge Brexit vote blow. 2017 has been a relatively quiet year for the pound compared to the wild ride it endured in 2016, but even so, the sterling is far from its pre-Brexit vote highs . A combination of a resurgent U.S. Dollar, below-expectation economic data and concerns over the excruciating slow progress of Brexit negotiations are seen to be behind the sluggishness in the British pound’s recovery.
What currency traders would now like to know however, is how the GBP will fair in the months leading to the official exit of the U.K. from the E.U. on March 29, 2019. Most forecasters hold that the pound’s fortunes are set to be inextricably linked with how Brexit negotiations progress as the year goes on.
Market doubts over whether a trade deal can be reached may also hurt sterling, as would delaying any agreement until early 2019. Investors will be focussing on implications of a possible Labour government which could also hold back the pound.
All in all, with many expecting UK inflation to start slipping following the sterling-induced boost last year, the currency is vulnerable to bad economic news and further obstacles in Britain’s rocky path towards leaving the EU.
*Please note that this article is not meant to be construed as investment advice or suggestion of an investment strategy with respect to any financial instrument.
*Sources: CNBC, Reuters, Investopedia, FXStreet