More than $400 billion worth of British pounds and US dollars are exchanged every day, making it one of the world’s busiest currency pairs. A market that deep and liquid doesn’t usually move around too much day to day. Today is not one of those usual days.
The pound dropped by 1.5% against the dollar today (Sept. 21), a big move in this market. How big? It was the biggest one-day drop in two years:
After the carnage in the aftermath of the Brexit vote on June 23, 2016 (the day after, the pound fell by nearly 9% versus the dollar), the pound drifted down to historic lows in early 2017. It has gained ground since, as negotiations about the relationship between Britain and the EU after the UK’s official exit in March 2019 progress.
Now, after a speech today from Theresa May that pundits say all but guaranteed a “no-deal Brexit,” the pound is tanking again.
Some analysts say that the pound’s recent rebound was little more than a blip. “We stay with our view that the 2.5% rebound seen in the trade-weighted pound in the last few weeks went too far,” Gavin Friend, a market strategist at National Australia Bank, told Bloomberg.
At this point, May says, there are only two possible outcomes: Either the EU compromises or Britain leaves the bloc without any deal in place. The latter is looking more and more likely, as the hurtling pound reveals. As Britain nears an impasse in its negotiations, traders are beginning to worry. “The rhetoric that ‘no deal is better than a bad deal’ is startling, and undermines recent hopes that a deal could be finalized soon,” currency analyst Hamish Muress told the BBC.
In short, this may be the first tumble of many.