Pound crisis: Expert warns the pound losing prominence on world stage ‘more like peso’

Pound crisis: Expert warns the pound losing prominence on world stage ‘more like peso’

The pound has lost about one-fifth of its value since the 2016 EU referendum, according to analysts at Bank of America. In fact, they claim that Brexit has had catastrophic consequences on the currency and said the pound can no longer be analysed against other major currencies such as the dollar.

Kamal Sharma, a currency analyst at Bank of America, made the claims and said trading conditions in the pound and big swings in exchange rates mean the Sterling now has more in common with the Mexican peso than the US dollar.

Writing in a research note to mark the fourth anniversary of the EU referendum, he said: “We believe sterling is in the process of evolving into a currency that resembles the underlying reality of the British economy: small and shrinking with a growing dual deficit problem similar to more liquid [emerging market] currencies.”

The analyst said the decline of the currency began with the shock 2016 Brexit vote.

After that, he said the pound has become “neurotic at best, unfathomable at worst”.

Mr Sharma said that even four years after the referendum result, investors still view the pound with volatility.

He said this was exemplified by how the difference between rates at which investors are willing to buy and sell sterling – as it remains significantly larger than in other major currencies.

Due to continued uncertainties over the UK’s future relationship with the EU, investors are less willing to take views on the currency – which has resulted in a drop in liquidity.

Mr Sharma explained this means that the pound can no longer be analysed as part of the G5 currency group – which includes the dollar, the euro, the Japanese yen and the Swiss franc.

JUST IN: FTSE 100 LIVE: Global stocks gain as investors’ economic hopes soar

It plunged to its lowest level against the dollar since 1985 in mid-March.

The Sterling fell five percent to $1.15, its worst exchange rate in 35 years.

The pound also fell sharply against the euro within the same period, falling more than 12 percent to €1.06.

But the sterling has made some gains, currently recording $1.25 against the dollar, and €1.11 against Europe’s single currency.

Mr Sharma warned that failing to agree a post-Brexit trade deal with the EU this year will have catastrophic consequences for the pound.

Vasileios Gkionakis, global head of foreign-exchange strategy at Lombard Odier agreed and said it would be “disastrous” for the Sterling if a deal is not brokered.

He said the pound call fall to $1.10 or below, from $1.25, while the euro could converge to parity from £0.90.

Published at Wed, 24 Jun 2020 07:29:00 +0000