As Brexit day nears, sterling is once again in for a rocky ride
IN THE weeks following the Brexit referendum in June 2016 the pound gyrated wildly, losing 10% of its value. After a period of calm, sterling is looking shaky again. On a trade-weighted basis it has lost 5% of its value since April. On August 10th it fell below $1.28 for the first time in a year. Further depreciation looks likely, given uncertainty over the government’s Brexit plans.
The prospect of leaving the European Union has depressed sterling’s value because it will damage the economy. Slower growth will call for looser monetary policy. As returns on sterling-denominated assets fall, fewer traders will want to hold them. Of 140-odd currencies tracked by Bloomberg, a data provider, sterling has depreciated against more than 120 since the referendum (see chart). The Venezuelan bolívar and the Turkish lira are among a mere handful of currencies not to have gained in value against the pound.
Brexiteers argue that sterling’s tumble delivers great benefits. A...