Pound Drops to New 31 Year Low Against Dollar


July 2016

Pound Drops to New 31 Year Low Against Dollar

Sterling fell in value against the dollar to its lowest level since 1985 in Asian trading on Wednesday, as the economic fallout from the Brexit vote continues to gain traction.

In the immediate aftermath of the announcement of the vote to leave the European Union, the pound fell drastically against the dollar before recovering some of the lost ground in subsequent days. However, bar small gains on the June 28th, sterling has been falling against the dollar since June 26th, dropping on Wednesday to a low of $1.279 before rising slightly to $1.296 at the end of trading that day.

The pound also fell to new lows against the Euro, closing at the end of trading on Wednesday at €1.167.

These latest falls mean that, since the 23rd of June, when sterling was up to $1.50 after polls pointed towards a vote to remain in the EU, the pound has fallen by nearly 15% against the dollar.

As well as the pound, stock markets plummeted immediately following the vote, with the FTSE 100 and FTSE 250 indices losing a lot of ground. While the FTSE 100 has since recovered, the FTSE 250, which is more UK focused, continues to struggle. It closed at 15,587 on Wednesday, after sitting at 17,333 on June 23rd before the referendum results were in.

The FTSE 350 index, which combines the FTSE 100 and the FTSE 250, remains at 13,527 - just below its June 23rd pre-referendum peak of 3,535.

The biggest losses have been in banking, and house building and development, with FTSE 100 companies Taylor Wimpey and Barratt Developments losing 4% and 5% from their share value respectively on Wednesday alone.

This latest drop in sterling and continued weakness in the stock market seems to confirm the suspicions of those who warned that brief recovery seen after the initial sharp drops should not be cause for complacency.

Last Wednesday, after it was first reported that the FTSE 100 had regained all of its lost ground, Adam Jepsen of Financial Spreads said: “Any investors who think the markets ave calmed down should think again. It is fair more likely that we are in the eye of the storm.”

Indeed this continued fallout seems to confirm Mark Carney’s claims made earlier this week that the economic risks that the Bank of England’s Financial Policy Committee envisaged prior to the vote “have begun to crystallise.”

Michael Hewson from CMC Markets said: “The pound has continued to come under pressure in the past couple of days sinking to new 31 year lows.

“The suspension of commercial property fund redemptions by a number of big players has precipitated a broader sell off in the UK property sector including house builders and other asset managers.

“Combined with a warning that some Brexit effects were already starting to crystallise and this week’s slowdown in recent economic data we’ve seen a bit of a domino effect in locally exposed sterling assets, as well as risky assets generally across the world.”

The fallout is being felt in markets across the world, with Japanese indices continuing to fall, and shares plummeting in Italy’s central bank.