If you have been paying attention to the markets over the past few days, you will know the British pound has taken something of a nosedive. Ever since Prime Minister David Cameron announced the date for the referendum on Britain’s membership of the EU, the pound has struggled.
On 1st February this year, the pound stood at 1.3140 against the euro. It reached 1.3274 on Wednesday of that same week, before dropping back to around the 1.29-1.27 level. However, at the time of writing, the last couple of days have been tougher for the pound. By the end of Wednesday 24th February, it had dropped back to 1.2668.
A similar story was in place for the pound against the US dollar. At the start of the month, the pound was scoring 1.4302 against the US dollar. This reached 1.4630 just a few days later, enabling us to see just how strong the pound was in this respect. But once again, there was a notable change towards the end of February. On the 24th, the rate was down to 1.3911 – and it could go lower by the end of the day this article is being written on.
Some have speculated that the pound could drop sharply if the vote comes back that Brits want to leave the European Union. However, this is all speculation and there is every chance that will not happen. In truth, no one knows what could happen if the British public do vote to leave. At present, the outcome of the vote is uncertain and we simply do not know what will happen. Is it just as likely that sterling will drop in value because of all the scaremongering, instead of as a result of the circumstances themselves?
Uncertainty always affects the value of any currency. This isn’t just relevant for the pound – it applies to all kinds of other currencies as well. However, it does not mean we should all vote to stay in – after all, who knows whether the pound might actually drop… and then bounce back upon news of an ‘out’ vote?
In the end, we are in a period of uncertainty over the result. This is what has had an effect on the value of the pound. Anything else is pure theory, and we have seen in the past that analysts, despite their experience, can and do get things wrong. To this end, we should simply ride out the storm and see what the pound does over the course of the next four months. Beyond that, no one knows what might happen. The euro could also suffer if we did vote to leave, and that may trigger even more uncertainty in the long run – but not, in this case, for the pound.