Yahoo Finance Pound could easily drop more than 10% in 2019 with a no-deal Brexit
Another day, another gloomy prediction for the UK currency.
Michael Brown, a senior analyst at the international payments firm Caxton predicts that the pound could fall by more than 10% if there’s a no-deal Brexit in March 2019.
“Sterling would likely experience a brutal sell-off, with the pound potentially losing more than 10% of its value,” he said in a new research note on Tuesday.
The pound (GBPUSD=X) has already tumbled by about 16% versus the US dollar since the Brexit referendum in mid-2016. In the aftermath of the vote, the currency dropped from $1.50 to trade as low as $1.18 before recovering some lost ground. It’s now trading around $1.26.
The pound (GBPEUR=X) also fell sharply against the euro after the referendum, dropping from around €1.31 to trade as low as €1.08 in 2017. It’s now at €1.11.
The pound weakness has been especially evident at some airport currency brokers this month, which were exchanging one pound for roughly one dollar and one euro.
Last week, Travelex’s Heathrow airport location quoted pound exchange rates of 0.9281 for euros and 1.0531 for dollars.
Moneycorp’s Gatwick branch quoted a euro price of 0.9391 and a dollar price of 1.0664. However, airport currency exchanges are known to be particularly expensive for consumers.
“Looking ahead to 2019, there are few sterling-positive scenarios, with the pound set to remain volatile and driven by Brexit-related headlines,” Brown said.
Brown said the “best-case scenario” for the pound would see the UK exit the EU in a managed, orderly way with an agreed deal, alongside market expectations for more interest rate hikes from the Bank of England next year.
“This could yield 3% to 4% of sterling upside, although such an outcome looks unlikely at present,” he said.
Brown is the latest analyst to note the massive risks for the currency and the limited upside it could see if prime minister Theresa May gets her Brexit deal approved.
“The upside potential is lower than the risk of downside potential,” said David Cheetham, chief market analyst at the online broker XTB.
“If there is a hard [no-deal] Brexit you’d easily see a revisit of those lows [around $1.20],” he told Yahoo Finance UK last week.
But Cheetham isn’t predicting outright doomsday scenarios.
“I don’t think overnight the pound would lose 30% to 40%,” he said.
The drop in the pound since 2016 has contributed to a spike in inflation in the UK, which led the Bank of England to hike interest rates in a bid to keep prices from rising too quickly. In 2017, the inflation rate hit a high of 3.1% but has since come back down to around 2.4%.
Prime minister May continues to push for members of parliament to back her Brexit deal with the European Union to avoid a no-deal Brexit. She has said she does not want a second referendum on the issue.
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