Brexit’s Influence on the GBP Exchange Rate

by Andrea Dawson 2 years ago in finance

Here's how Brexit will change the currency market.

Brexit’s Influence on the GBP Exchange Rate

At first, when the referendum came up, many people supported the "Britain should remain in the European Union" position. This is because it is familiar for people to have Britain as a part of the EU. But Brexit is a possibility for the United Kingdom to renew its transatlantic alliance and also could strengthen the role of Britain.

The portion of the people who wanted Britain to leave the European Union celebrat3e and the other portion sat in shock. But this referendum was not clear. It came up with no specification about the degree intended separation.

This is a chance for Britain to return to some of its historical contributions, partnerships and to begin bridging the Atlantic and become the West's world security leader again. As the negotiations develop, Britain could be able to have an ongoing role in forming the relationships and Atlantic partnership.

On the way, Britain can build new links with the United States, no matter if some ties with Europe are severed. At the same time, with Brexit, Britain will not exit from Europe entirely.

It will be a contributor for Atlantic partnership, and that partnership will be more relevant to the emerging world. The transatlantic alliance suffered great changes after the end of the Cold War because of the national state's weakness and the rise of the new powers.

It is an urgency to refashion NATO because if there is no stronger strategic in the west, then China can fulfill the vacuum. The Article 50 says that every member state should come to the other country's aid. NATO cooperation needs to be more that this Article 50. China, India, and Russia will step in if the West does not provide stability and the politics in the world will be turned upside down.

There will be chaos if the West shows up in conflict with no strategic concept at all. The Chinese initiative can change the geopolitical center from Atlantic to central Asia, with India, Iran, and Turkey at the core.

There will be a collapse in the Middle East for the old world and the nation state. There was a possibility to form alliances in the past, but that is not the case nowadays. According to the set of mutually accepted rules, the world order was based on the cooperation and competition of the nation states. The west faces significant challenges, and it could not continue with this current system which causes problems like these.

Next, the cyber world changes the character of the human. The full plate of information that people get just with one click of a button leads to emotiveness and narcissism. On the other hand, there is no willingness from the west for developing a new big strategy. The West needs to come to terms with the fact that that China will dominate the world for ten or thirty years.

The Exchange Rate Forecast and the GBP Strength

The GBP remains relatively very resistant with the sentiment of the Bank of England and also the political wrangling provoking the extreme volatility of the exchange rate, rather than essential fundamentals.

One of the oldest pairs of currency in the world is the British Pound vs. US Dollar. The percentage of trading is at its lowest since 18th of July with trades of near 1.3000 GBP/USD and with little progress. This opens the door for the market of the bull and bullish strategies, as there are clues that Bank of England will need to relook at the rate hikes as soon as possible.

The possibilities for bullish strategies are due to exchange rate forecast. However, the inflation is the center of the argument because it is a fundamental problem at the moment in the British economy. After sharp revaluation in the value of the Pound, as a result of the Brexit referendum, the prospect of severe inflation is just mathematical.

The prices in GBP/USD dropped to more than 20% in short time, so it is logical that prices will begin to rise for an import-heavy economy. Despite all of this information, the measures of the Bank of England will remain uber-dovish with an expectation that risk of the famous Brexit will hit the British economy, but will outweigh the risks of a strong inflation.

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Andrea Dawson

A fitness blogger and a personal trainer.

See all posts by Andrea Dawson