A recent poll of Forex strategists has predicted that Sterling could suffer a loss of around 9% of its value against the dollar in the aftermath of a no-deal Brexit. The UK is expected to leave the European Union on March 29th this year – and as yet, the country remains in a deadlock with EU officials. At present, no deal has been agreed with the EU.
However, many economists believe that both sides will ultimately come to terms with a free-trade deal. In the event of a free trade agreement, most strategists in the same poll, conducted by Reuters, said Sterling would weigh in at $1.32 after the breakup.
Six-month Predictions
Senior strategists across the world predict that post-Brexit, it should take approximately six months before the pound begins to strengthen. By October, most agree that Sterling could reach $1.35. After a year, experts agree that the pound could be up to $1.39.
While this is promising for Sterling, the figures would still be significantly below trading levels prior to the June 2016 referendum to leave the EU had taken place. However, it is the post-Brexit factors which play the most important role in determining the future strength of Sterling.
Negative Consequences
William Adams of PNC Financial Services suggested that Sterling could fall to parity if it does not address the negative consequences of the decision to leave the EU. In order for the currency to maintain any sort of strength, Adams’ suggested that it would be vital for the UK to ensure traffic continues to flow freely through the Channel Tunnel (the underground network connecting the UK to mainland Europe).
In addition to this, preserving the Good Friday Agreement with Ireland and avoiding negative issues such as a backstop would be crucial to keeping the pound at its best.
Cautious Optimism
The most favourable of post-Brexit predictions suggested Sterling could drop to $1.28 – with the most disorderly Brexit scenario resulting in a cycle of lows of $1.18.
The Bank of England is expected to raise the cost of borrowing before the year’s end, while the US Federal Reserve is in a holding pattern which could offer some support for Sterling.