The performance of pound sterling over the last couple of years and into the foreseeable future hinges on one word: Brexit. Since the referendum on the UK leaving the EU in June 2016, the value of the pound has fallen dramatically against all major currencies. Its fluctuations since then have been determined by the level of optimism or pessimism regarding the outcome of Brexit negotiations. There have been recoveries, but the possibility of the pound reaching its former pre-referendum value has remained out of reach.

All about Brexit

Britain will leave the EU for better or worse in March 2019. For investors and economists, the best situation as far as the value of the pound is concerned would be a “soft Brexit”. This is Prime Minister Theresa May’s preferred option, one that would retain certain ties and arrangements with the EU. However, the worst-case scenario, that of a no-deal Brexit, remains a very strong possibility, in which case the pound is expected to continue to fall against other currencies as investors look elsewhere.

Before the referendum, the value of the pound was equivalent to $1.45 or €1.30. After the referendum, it fell heavily against both, though initially it fared worse against the dollar than the euro. This was because the political situation in Europe was also uncertain, as investors awaited the outcome of the French elections and a referendum in Italy. However, the euro soon rallied, meaning that in fact the pound ultimately fared worse against the euro than against the dollar.

Immediately after Brexit, the pound dropped to below $1.30 and €1.15. In September 2016, it was worth just €1.10. A recovery to about €1.20 was followed by another slump, and the pound has fluctuated between about €1.10 and €1.15 since. Against the dollar, the pound was worth $1.20 at the beginning of 2017 but rose gradually over the course of the year. In April 2018, it reached a high of over $1.43 but tumbled to below $1.35 in May and has dropped further since then.

At the time of writing, the pound is valued at approximately $1.30 and €1.12.

Economic factors

In November 2017, the Bank of England raised interest rates for the first time in ten years. This sparked something of a recovery for the pound, but a similar rise in August this year did not have the same effect. Such hikes need to be backed by evidence of a solid economic upturn, such as rises in consumer spending and employment. Interest rates are expected to hold at 0.75% now until after Britain leaves the EU next March.

Of course, the relative value of the pound is also affected by the strength of other currencies, and events in their respective nations. The dollar has been particularly strong in 2018, but its growth is expected to be curtailed soon as the impact of US trade wars hits home. The euro, on the other hand, is expected to continue to grow in strength. However, if Britain leaves the EU without a deal, then overall economic growth within the EU is expected to drop by 1.5% by 2030, according to the International Monetary Fund (IMF).

Against other currencies

The pound has also fallen against major currencies in Brazil, Russia, India, China, South Africa and Japan. Some economies are worse off than the UK, however, with both the Turkish lira and the Egyptian pound falling against sterling due to political turmoil. One of the best ways to develop a good understanding of world currencies is through forex trading. Forex fraud information can help you understand forex (foreign exchange) trading and the world currency market in order to protect your investments and savings.

The value of the pound against the Indian rupee also dropped dramatically after June 2016, going from 97.3INR in May 2016 to a low of 81.65INR by October. Since then, it has recovered significantly as the rupee faces its own troubles, and is currently floating around 93.6INR.

What does the future hold?

When Theresa May published a coherent Brexit plan in July, support for the pound rallied, but with the ultimate outcome still uncertain, that support has faltered. Worries over a no-deal departure from the EU caused the pound to hit a nine-month low against the euro in August, as it also fell below $1.29 for the first time in a year. With the IMF claiming that a no-deal Brexit would knock 4% off Britain’s gross domestic product (GDP), the pound is expected to drop to $1.28 before the end of this year. If no further progress on securing trade deals is made, then it will certainly drop further – with recovery looking increasingly unlikely.