Is the Pound in Freefall?

Brits voted for Brexit because they blamed immigration and their relationship with the European Union for their troubles. The result has been the pending exit from the EU and a British pound that is in free fall against other currencies. Bloomberg writes about the pound in freefall.

The shadow of a hard Brexit is spreading across Britain’s financial markets, with the pound’s drop to a 31-year low versus the dollar leading the way.

Government bonds also slid as the weaker currency boosted the market’s inflation expectations. Even stocks, which have thus far been buoyed by sterling’s drop, couldn’t escape the selloff, with the FTSE 100 Index dropping for a second day.

Not only is the pound at a historic low against the US dollar but programmed traders caused a flash crash that drove the currency even lower according to The Guardian.

Just after midnight in the UK on Friday morning, when most of Europe was asleep, foreign exchange dealers in Asia were jolted out of their routine contemplation of the currency markets by a sudden, inexplicable plunge in the value of the pound against the dollar.

The UK currency had been under renewed pressure since Sunday, when Theresa May said she would trigger article 50 by next March and hinted at a hard Brexit – putting immigration controls at the forefront of EU discussions at the expense of remaining in the single market. With investors worried about the subsequent outlook for the UK economy, the pound had already dropped to a new 31-year low.

But at 7.07am Hong Kong time on Friday, when traders were just starting work and little business is usually done, sterling suddenly fell off a cliff.

This resulted in the worst one day drop of the currency since the 10% the day after the Brexit vote. Is the pound still in freefall? How low could it go? And how should a Forex trader approach this trading opportunity?

How Low May the Pound Fall?

The London Telegraph speculates about how low the pound might go.

The pound has fallen to a 31-year low against the US dollar, pushed down by the latest market jitters surrounding Brexit.

Sterling had already fallen sharply following the referendum, leaving markets, businesses and Britons asking: what next?

The average analyst thinks the fall in sterling is probably over.

Bank of America Merrill Lynch’s analysts believe that, for now, the pound could keep sinking as traders and investors realize that Brexit is actually going to happen, but remain uncertain on its final form.

No one really believed that the Brits would vote for Brexit. As such the consequences of their actions are still sinking in. That includes with various parts of the financial establishment. Thus there are analysts who expect the pound to continue in freefall to as low as $1.10 to the pound which is down another 15 % or more. Traders may wish to use options trading instead of trading directly as the next move of the GBP is not all that clear.