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Brexit and its Impact on the Pound in the Foreign Exchange Market

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  • Pilbeam Keith

    (City, University of London, Department of Economics, London EC1V 0HB, United Kingdom of Great Britain and Northern Ireland)

Abstract

In this paper we outline the impact and likely future impact of Brexit on the pound. We argue that Brexit implies a significant depreciation of the pound and the degree of depreciation required is heavily linked to whether there will be a soft or hard Brexit. We find that the pound has had broadly similar depreciations to date against both the dollar and the euro. Brexit has considerably raised UK economic policy uncertainty and this, in turn, has at times led to an significant increase in future implied volatility of the pound. While there is an overall link between the state of the ongoing Brexit negotiations with the European Union and movements in the pound in the foreign exchange market, the link is not especially strong unless the perception that the negotiations are going badly has exceeded 60%.

Suggested Citation

  • Pilbeam Keith, 2019. "Brexit and its Impact on the Pound in the Foreign Exchange Market," The Economists' Voice, De Gruyter, vol. 16(1), pages 1-5, December.
    • Handle: RePEc:bpj:evoice:v:16:y:2019:i:1:p:5:n:11
    DOI: 10.1515/ev-2019-0026
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    References listed on IDEAS

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    1. Nicholas Bloom & Philip Bunn & Scarlet Chen & Paul Mizen & Pawel Smietanka & Gregory Thwaites, 2019. "The Impact of Brexit on UK Firms," NBER Working Papers 26218, National Bureau of Economic Research, Inc.
    2. Arthur Korus & Kaan Celebi, 2018. "The Impact of Brexit on the British Pound/Euro Exchange rate," EIIW Discussion paper disbei243, Universitätsbibliothek Wuppertal, University Library.
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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