After dominating the financial headlines for most of Q2, the UK’s “leave” referendum on EU membership caused the GBP to plummet, while EUR/USD also took a decent step lower. The vote also gave an unwelcome safe-haven boost to both the JPY and the CHF and even caused some to postulate the next Federal Reserve move would be to cut interest rates rather than lower them.
A couple of months since the historic vote, GBP has remained range-bound, stuck at lows not seen for decades as most economists forecast a looming recession as the effects of UK’s long, drawn out divorce manifest in the real economy. So where does GBP go from here? All the speculation at the moment is on how low it can go, as looming central bank stimulus and talk of interest rate cuts infuse fear into anyone expecting a sharp rebound anytime soon.
There are some calls however, for GBP to finish 2016 much stronger than anticipated, driven higher by respectable growth versus previous calls for contraction. The billion-dollar question will be if the UK’s economic fortitude can be sustained long enough to cause the Bank of England to scrap it plans for monetary stimulus.