The pound had an awful year in 2016. To be fair, the first six months weren’t all that bad as it retained a steady course, trading above $1.50 at one point and performed well against the euro after it had experienced troubles the year before due to the Greek crisis and many other factors.
Yet then Brexit struck. Even though it was expected to drop before and after the UK’s referendum on EU membership, few predicted such a fall. It dropped to low levels not seen for over 30 years. There was a minor recovery nearer the end of the year, but whether that will continue and it can reach pre-Brexit levels remains to be seen. Various elements could see it increase or decrease in value throughout 2017.
Start to the year
The month of January has seen a few up and downs for the pound. It experienced its best day since 2008 after Prime Minister Theresa May promised a parliamentary vote on the UK’s deal to leave the EU. However, around ten days later it fell back below $1.26, suggesting the earlier positives may have been a one-off.
Many will be hoping that the lows it experienced in October 2016 will form a baseline for the currency, values which it will never fall below again. A somewhat shaky start to 2017 suggests that the uncertainty and volatility that surrounded the currency at the end of the year will continue into the new one, as January has so far demonstrated. While it may increase, a following decrease looks likely most of the time.
Brexit was the catalyst for the pound’s significant drop in value, and with the details of the UK’s exit from the EU still to be decided, it will continue to have a big impact on its price in 2017. Negotiations are due to take place later in this year and last no more than two years.
As soon as Article 50 is triggered and the UK’s exit becomes official the pound will likely drop again, similar to when Brexit was first announced. However, should the resulting negotiations prove positive for the UK (such as retaining access to the single market) it may not be as bad as many predict, giving the pound a chance to grow in value.
Against the euro
Another opportunity for the pound to recover could be against the euro. France, Germany and The Netherlands all have important general elections throughout the year, which will introduce some level of political uncertainty to the currency. This will offer great opportunities for ETX Capital forex traders to monitor and trade around these events.
The outcomes of these elections could prove highly significant for the future of the EU, Eurozone and its currency. Plus, if the UK manages to get a favourable Brexit deal, the pound is likely to strengthen in relation to the euro as well.
Advantages of a low value currency
A weak pound does hold some advantages for the UK, with manufacturing and export levels up, for example. It is also set to boost dividends in 2017. These actions will all come back around and help strengthen the currency over the long term, possibly seeing a positive effect later in the year, as more investors will be tempted to buy a cheap currency.
There are a lot of what if factors, but some positive opportunities will present themselves for the pound to increase in value in 2017.