Has Sterling Overreacted to Brexit?

One of the most tangible consequences of the U.K.’s June vote to quit the European Union was the immediate collapse in the value of the pound. The combination of a huge political upset — which saw the resignation of a national leader — and the prospect of a wounded economy drove sterling lower on the foreign exchange market in the immediate aftermath of the vote. Six months on, however, the reasons for the currency’s depreciation seem less compelling.

The chart below shows where the pound is currently trading compared with levels just prior to the plebiscite. The rally from the October lows hasn’t pared its losses by much; the currency is still down significantly. But at least some of the reasoning for traders and investors to be bearish on the pound have dissipated since then.

Bloomberg

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