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How Brexit could smash the British pound a second time

Brexit has already slammed the pound once. It could happen again.The currency would be put under seve...

Posted: Aug 21, 2018 12:39 PM
Updated: Aug 21, 2018 12:39 PM

Brexit has already slammed the pound once. It could happen again.

The currency would be put under severe pressure if Britain crashes out of the European Union next year without striking a deal on trade, according to analysts.

"The day after the UK voted for Brexit, the pound suffered the biggest single day loss for a G10 currency in recorded history," said Fiona Cincotta, a senior market analyst at online trading platform City Index. "The pound could potentially replicate this decline."

The pound plummeted after Brits voted to leave the European Union, hitting a low near $1.18 against the US dollar in late 2016. The currency has recovered some of its losses, but rising fears of a messy exit have caused it to weaken in recent sessions to $1.27.

George Brown, an economist at financial firm Investec, believes the United Kingdom and European Union will get a deal ahead of the deadline in late March. But he warned the pound could fall below $1.10 if an agreement isn't in place.

The slow pace of negotiations has heightened fears in recent months that Britain may leave the European Union in March without a transition deal to keep it temporarily in the bloc's single market and customs union.

A sharp reaction by the pound is just one potential trouble area. Automakers, grocers and retailers have warned of dire consequences if they're not able to receive the "just in time" deliveries that underpin their supply chains.

Stock market expectations

Stocks are expected to register a more nuanced response than the UK currency.

"The stock market is less susceptible to a no-deal outcome than the pound," said David Cheetham, chief market analyst at brokerage XTB. "While there may be a knee jerk reaction lower of 2% to 3%, it is unlikely to experience a large loss."

A weaker pound would make it cheaper for foreign investors to buy British stocks, which would help support prices.

Many of the largest firms traded on the benchmark FTSE 100 are miners and oil companies, which make the majority of their revenue in foreign currencies outside the United Kingdom. Their earnings will get a boost when foreign sales are translated back into pounds.

But not all firms are immune.

"Companies which service the domestic market and are most reliant on imports would likely be hardest hit in a no-deal Brexit," said Jonathan Davies, head of currency strategy at UBS Asset Management.

Cincotta said that British retailers and manufacturers would also face increased costs to import materials as the lower pound bites and new tariffs are imposed.

"Industry-wise, soft drinks, alcoholic drinks and packaged food industries are the most sensitive to the impact of Brexit," said Ugne Saltenyte, a macro analysis specialist at research firm Euromonitor International.

Cheetham said that travel companies and airlines could suffer. Brexit could force flight cancellations, and passengers may opt to stay home as they struggle with higher inflation resulting from the weaker pound.

Bond market expectations

UK bonds could also see some big moves.

John Higgins, chief markets economist at Capital Economics, said a no-deal Brexit could cause 10-year UK government bond yields to drop from 1.25% to 1% as investors crowd into the safe haven asset.

"The yield fell from nearly 1.4% on the eve of the [Brexit] vote to 0.6% in less than two months," he said. "So a drop ... to 1% would not seem out of the question."

Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 295295

Reported Deaths: 6724
CountyCasesDeaths
DeSoto19672230
Hinds18799386
Harrison16710278
Rankin12685264
Jackson12592226
Lee9687160
Madison9457199
Jones7962146
Forrest7208136
Lauderdale6833226
Lowndes6022137
Lamar588080
Lafayette5733113
Washington5218130
Bolivar4609123
Oktibbeha441393
Panola430394
Pearl River4167130
Warren4129114
Pontotoc408869
Marshall403192
Monroe3989126
Union395374
Neshoba3807168
Lincoln3541102
Hancock347374
Leflore3375118
Sunflower318386
Tate302474
Pike300195
Scott293870
Alcorn291861
Itawamba289975
Yazoo289262
Tippah278765
Copiah277857
Coahoma277568
Simpson274878
Prentiss269758
Wayne253841
Marion252678
Leake252471
Covington248879
Grenada247377
Adams234377
George231745
Newton229652
Winston221675
Jasper213445
Tishomingo212365
Attala206569
Chickasaw201151
Holmes182270
Clay179150
Stone172429
Tallahatchie170539
Clarke169371
Calhoun157828
Smith152731
Yalobusha144836
Greene127633
Walthall124140
Noxubee122829
Montgomery122438
Perry121634
Lawrence120321
Carroll118225
Amite111533
Webster110630
Jefferson Davis101731
Tunica99023
Claiborne98429
Benton93324
Humphreys92827
Kemper90223
Quitman77114
Franklin76119
Choctaw69516
Jefferson62527
Wilkinson62426
Sharkey48817
Issaquena1676
Unassigned00

Alabama Coronavirus Cases

Cases: 493769

Reported Deaths: 9931
CountyCasesDeaths
Jefferson710731374
Mobile36139727
Madison32425455
Tuscaloosa24184410
Montgomery22586500
Shelby21968215
Baldwin19758283
Lee14967153
Morgan13667251
Calhoun13300286
Etowah13184319
Marshall11262209
Houston10104261
Elmore9385185
Limestone9363134
Cullman8897181
St. Clair8827223
Lauderdale8607211
DeKalb8459175
Talladega7523163
Walker6524255
Jackson6495102
Autauga627091
Blount6102127
Colbert6004118
Coffee5249102
Dale4642107
Russell404930
Franklin399177
Covington3960106
Chilton3876100
Escambia377672
Tallapoosa3588142
Clarke343650
Chambers3413110
Dallas3403141
Pike293472
Lawrence283484
Marion281995
Winston246867
Bibb245060
Geneva239970
Marengo236455
Pickens224654
Barbour211651
Hale210568
Fayette200756
Butler196866
Henry182441
Cherokee177038
Monroe166139
Randolph163740
Washington156535
Crenshaw144854
Clay144454
Macon142043
Cleburne137839
Lamar132833
Lowndes131151
Wilcox121825
Bullock116936
Conecuh106724
Perry105627
Sumter98531
Coosa88923
Greene88232
Choctaw55123
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