Referendums and the Pound

December 5, 2016

The 'no' vote in the Italian referendum resulted in an overnight plunge for the Euro against all sixteen of its currency pairs - including the U.K pound. This vote is reminiscent of the Brexit and may have similar implications for the future of the European Union. However, the market is taking the news in stride, seemingly becoming jaded toward 'calamitous' votes that end up having marginal, and often positive effects on the global economy.

The Euro recovered most of its losses within hours.

In the U.K, the negative predictions for the Brexit aftermath continue to be disproven. The Pound has gained ground against, not only the Euro, but also the Dollar, and Japanese Yen. This news comes after new data reveals that the British service sector growth has reached a ten-month high. While this news is indeed positive for the British economy, it in no way reduces the risk of inflation that will result from Brexit. There will be inflation, but instead of hurting the economy, it looks more likely to lead to increasing wages, growth and robust exports going forward.

The Pound also lost most of its gains within hours, probably due to the Euro recovery.

The next catalyst for the Pound will be regarding Brexit. A legal hearing will decide if Parliament needs to OK the official negotiations of the U.Ks exit from the EU. The decision is expected by January. The Pound likes delays in Brexit, but the British economy seems ready to move on.