Brexit Aftermath Crushed GBP Outlook 2016
Just like 2008, no one saw this coming. Britain’s vote to leave the European Union has shocked the world, not to mention crushed the GBP to EUR outlook for 2016. The pound to euro took a massive hit after the Brexit results rolled in.
The exchange rate was hovering at €1.3/£1.0 around 7 p.m. EST on Thursday night. But then it started to become clear that the majority of Britain was leaning towards leaving the EU. Markets frantically priced in the information, dropping the GBP/EUR to a midnight low of €1.2035/£1.0. It was a 31-year low for the British pound.
That’s a drop of 7.42% on a single piece of news. If you stretch the timeline back even further into Thursday’s trading hours, the exchange rate was down up to 10%. By Friday morning, traders had pushed the pound-to-euro back up to €1.2431/£1.0.
It’s still a phenomenally large one-day drop for any currency. In fact, the Brexit results have swung the pound to euro outlook even more than the 2008 stock market crash. There’s absolutely no way of overestimating the importance of this referendum. (Source: “Brexit worse on GBP than 2008 financial crisis,” AJE, June 24, 2016.)
Leaving the European Union means abandoning a whole host of benefits like free trade, easy inflows of capital, and little to no travel restrictions. Several British banks have even threatened to move their headquarters if the country leaves the EU. (Source: “Goldman Sachs: ‘Brexit’ could crush the pound,” CNN, February 4, 2016.)
If they do, the British pound to euro outlook for 2016 would take another massive hit. As an industry, banking accounts for eight percent of the country’s gross domestic product.
There’s only one hope for the GBP/EUR outlook. If the crash continues, we may see the Bank of England Governor, Mark Carney, step in to buoy the currency. He has several options for making it happen, so that is a possibility.