Ok From The Horses Mouth, No G E, So Can We Stop Going On About It

[ToraToraTora]

https://www.bbc.co.uk/news/uk-politics-49125078

[jim360]

I suppose it depends on what counts as dramatic. Today the pound has fallen 1.5 cents against the dollar (as of this post), to 1.223, and similarly against the Euro to less than 1€10, both marking two-year low points. And, lest we forget, the day of the referendum itself saw the pound lose something like 13 cents against the dollar in a day.

[mushroom25]

would you not concede, Jim, that a change in the US federal interest rate is likely to have more of an effect on the exchange rate than the pronouncement of some nobody UK politician that nobody west of the Atlantic has ever heard of?

[jim360]

The US Fed rate is going to be important too. But that would dictate the performance of the dollar against all currencies, would it not? The pound has fallen against more or less every currency, and is the worst-performing major currency of the year.

There are at least two questions here:

1. Is the possibility of a No Deal Brexit leading to a fall in the value of Sterling?

Answer: Yes. Other effects also play a part but the simple fact is that ever since June 23rd, 2016, Brexit (and in particular a Hard/No Deal Brexit) has led to falls in the value of Sterling every time it seems more likely, and vice versa. It's unambiguous, and clear in the data. Yes there are other effects but you can still clearly see that Forex markets don't like No Deal.

2. Are the markets *right* to react negatively to a No Deal scenario?

Answer: Less clear. Most economic evidence suggests yes but I don't want to pretend that there's no argument at all to be had about this.

3: Should we even worry about falls in Sterling?

Answer: Also unclear, especially to me.

These questions are separate, but the simple and unambiguous truth of the matter is that the value of Sterling is highly volatile right now, and a significant negative impact is the perceived risk of a No-Deal exit. There is no sense in pretending otherwise.