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How Has Brexit Affected The Currency Exchange Rate?

Are you a Brit, intending to transfer money abroad this year? This might be because you're retired and plan to buy a holiday home in Spain or France, or because you're a UK business owner importing goods from the USA or Australia.

If this is the case, you may be interested to know how Brexit has affected the currency exchange rate so far. This information may help you, both to see what impact Brexit has had on the value of the pound, and to decide when to transfer money abroad to your foreign bank account.

Read on, to learn about the relationship between Brexit and the exchange rate.

1. Sterling has risen, the likelier that the UK looks to reach a Brexit deal with the EU.

The relationship between Brexit and the currency exchange rate so far has been that, the closer the UK looks to agreeing a deal with the EU, the further the pound strengthens.

For example, on Wednesday 13th March 2019, MPs in the UK Parliament voted by 321 votes to 278, a majority of 43, to forever rule out a 'No Deal' Brexit. This compelled prime minister Theresa May's government to return to Brussels, to seek a Brexit deal with the EU.

That day, the pound to euro interbank exchange rate climbed from 1.1573 up to 1.1776, a rise of over 2 cents, and a 22-month high. Meanwhile, the pound to US dollar interbank exchange rate jumped from 1.3084 to 1.3340, an intraday increase of +1.96%.

This tells us that, the likelier it looks that the UK will agree a Brexit deal with the EU, the further sterling rises. This is because the EU is the UK's closest trade partner, and roughly half of Britain's exports go to Europe.

So, it's thought that if the UK retains close ties to the EU after Brexit, this will favour Britain's economic growth. In turn, this contributes to lift sterling.

2. When Brexit uncertainty rises, the value of the pound has tended to fall.

Conversely, when there's a complication in the UK's Brexit negotiations with the EU, and financial markets feel less sure that Britain will reach a deal with Europe, sterling has tended to weaken versus other currencies.

To illustrate this, on Monday 18th March 2019, the Speaker of the House of Commons, John Bercow, surprisingly announced that prime minister Theresa May was not allowed to submit her draft Brexit deal to MPs for a 3rd vote. This surprised financial markets, who'd hoped that Mrs. May's deal might pass Parliament on its 3rd attempt.

As a consequence, that day the pound to euro interbank exchange rate fell from 1.1746 to a low of 1.1649, a decline of close to -1 cent. Also, the pound to Australian dollar interbank exchange rate dropped by -0.93%, from 1.8774 to 1.8598.

This shows us that, when there's a proverbial spanner in the works about Brexit, sterling loses value. This is because the uncertainty discourages UK businesses from investing and hiring staff, in turn weakening Britain's economic growth rate.

So to sum up, Brexit has affected the currency exchange rate by lifting the pound when a Brexit deal looks likelier, and weakening sterling when there's heightened Brexit uncertainty. This may be helpful for you to keep in mind, when you transfer money abroad this year.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email [email protected]

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