The Brexit Drama and Its Effect on The British Pound

The Brexit saga has shown the world the extent of sensitivity of a country’s currency to its politics. The volatility of GBP has been relatively extreme since the 2016 EU referendum that initiated this never-ending attempt by the UK to exit the EU. The pound is a free-floating currency, which means that it floats freely on the global currency market with traders, sellers and buyers determining what it is worth. Prior to the referendum, the British Pound experienced small fluctuations over a considerably long period. However, the immediate aftermath of the referendum saw a sharp decline in the value of the currency. Throughout the UK’s attempt to exit the EU, the pound has fluctuated alongside several key political events serving as a stimulus to such volatility.

The value of the British Pound dropped to a 31-year low upon the referendum, with many being uncertain about what the exit process would entail and how the economy and immigration aspects of the UK would be changed. Until Theresa May was elected as the Prime Minister of the UK in July 2016, the currency kept on declining, as the uncertainty around the country’s decision to exit the EU continued to weigh on people’s minds. However, following no-deal Brexit fears in October in the same year, the value of the currency plummeted again and remained low for a period of approximately 7 months, during which it violated slightly in response to certain political events. A major surge in the currency’s value did not occur until Theresa May invoked Article 50, the political decision of which was taken positively by many people as it indicated the UK government’s interest in negotiating with the EU to strike a deal prior to exiting the EU. The value continued to climb upwards at a steady pace up until Theresa May proposed a Brexit plan that was considered to be disastrous by many. Today, the value of currency remains low despite Theresa May having resigned as the prime minister and been replaced by John Morrison.

Upon John Morrison taking over the office, it again induced no-deal Brexit fears in many people, causing a further decline in the value of the British Pound. However, recently the value rose sharply after John Morrison’s Conservative Party won more than half of the seats in the Parliament as the winning has brought some level of certainty related to Brexit given the ease of decision-making processes in the UK Parliament with the newly-elected parliament members.

Over the course of the volatility of GBP, some have been negatively affected, while others have benefited from this Brexit drama. Foreigners working in the UK have been dealing with low, fluctuating exchange rates as they attempt send cash back to their countries. Given the undervaluation of the currency, most expatriates have probably been getting a little less per British Pound in comparison with what they were given prior to the referendum. As the British Pound has suffered against many currencies, the costs of travelling to other countries have also increased, which has resulted in a decline in the number of travelers in the past few years.

On the other hand, many Britons working in other countries have been capitalizing on this undervalued currency, especially the one working in UAE. Because Dirham is pegged to the U.S. Dollar, Britons working in UAE have been getting a little more per Dirham as they convert their cash into the British Pound. Since UAE has been expanding exponentially, many expatriates have decided to remain in the country. A country with a growing security industry implies that the country is filled with vast infrastructure and technological developments. Hence, given the positive economic performance of UAE and the undervaluation of British Pound, many Britons working in UAE have decided to remain in country and been sending as much money as they can back home to increase their UK investments and savings.

It is uncertain what will actually happen to British Pound once the UK successfully exits the EU. However, the economic growth of the UK and monetary policy decisions by the Bank of English will eventually determine the value of GBP in the post-Brexit area.