‘The pound could fall by another 20%’
The decline in the value of sterling has dominated the headlines for the past seven months – is the worst over for the currency? ‘No’ is the answer, according to Jordan Hiscott, chief trader at spread betting firm Ayondo Markets.
He now explains why the UK’s departure from the EU could knock another 20% off the value of the pound so that £1 only buys $1 versus $1.25 at present.
MORE PAIN TO COME
‘The impact of triggering Article 50 will be the realisation that there are no more appeals, debates or votes and that Britain will be leaving the European Union.
‘Once triggered, a two-year time frame will be given to the UK in which to completely remove itself from the EU. I expect sterling to depreciate in a drastic and disorderly fashion when this happens.
‘There has already been much conjecture about outcomes in the build-up to this event, but I think the reality of being outside the largest trade group in the world and having to negotiate Britain’s first trade deal in more than 30 years would likely have a sobering effect.
‘A weaker sterling is generally positive for the large amount of blue-chip equities that make up the FTSE 100 and whose profits are generated overseas. However, the reverse side to this would be the FTSE 250, whose constituents are largely based in the UK with significant domestic operations, would likely not benefit from a weaker sterling in terms of core incomes.
‘There may also be further headwinds from the relocation costs for any companies moving from the UK to Europe, as well as from listed finance companies not being part of the Mifid EU passporting scheme,’ he says.
NOT A BLANKET TRADE
‘At this stage I can’t decide what will be the more prevalent factor and I think it would be illogical to suggest a “one size fits all” outcome to the hundreds of different constituents of the FTSE 100 & FTSE 250.
‘Should the trade deals, either with the EU or other potential trading partners like the US or Australia, become delayed or not materialise during the two-year period after the triggering of Article 50, then we could find ourselves in a bleak situation in 2018/2019.
‘The potential worst case scenario could be parity for the pound/US dollar exchange rate,’ he concludes.
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