Recent news has shown people receiving one euro for their pound at airport exchanges. Although this is undoubtedly disastrous news for the pound, some believe that this is only the start of the trend, and news could yet get worse. In fact, some investors have gone one step further, suggesting that the pound could reach parity with the dollar by the close of 2016.
Pound Could Reach Parity by December
Should the pound and the dollar reach parity then it will create history, as it will be the first time that the two currencies have ever been valued at the same level.
Currently the pound is hovering between the $1.20 and $1.30 barrier, but rumours of the UK government perusing a ‘hard Brexit’ have caused the pound to lose against the dollar. With the UK’s demands for Brexit unknown, the time that they will leave the EU unclear and calls for triggering Article 50 now ignored, many investors are abandoning the pound because of the current uncertainty and turmoil.
Uncertainty Over Article 50
Once invoked, Article 50 will allow the UK a maximum of two years to work out the details of an exit. However, many experts predict that it will take far longer than this, and that a complex political power vacuum could be created.
The UK’s Prime Minister, Theresa May, has moved to quash these rumours though, stating that “Brexit means Brexit” and that Article 50 will be invoked early next year. But, the markets did not react to this news with the calmness that she would have expected. This is because, unless the path for Brexit is clear, the pound will continue to weaken. Some strategists have gone as far to state that the pound will continue to weaken significantly in the coming months and right the way up to the end of the year.
Foreshadowing the Future
Due to this uncertainty, the pound looks set to fall below the $1.20 level in the near future. Historically, there has always been technical support to stop the pound falling. However, this support seems to have eroded in response to the Brexit announcement, and the currency has hit all-time lows against the dollar and the euro.
The path to parity, however, is not unstoppable, and it would still require a drastic fall. As such, forex traders should watch their platforms closely for price movements. The pound looks likely to be volatile in the coming months; especially when data is released, so opportunities to make money are clear.
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