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Brexit Uncertainty Weighing Heavy on British Pound

While the Brexit debate continues to evolve, investors of the financial markets are adjusting their investment strategies in ways that seem to be impacting the value of the British pound. (Image: Hermann Rohr)
While the Brexit debate continues to evolve, investors of the financial markets are adjusting their investment strategies in ways that seem to be impacting the value of the British pound. (Image: Hermann Rohr)

As Cameron remains in campaign mode trying to make a case to his opponents to jump on board of the “stay in the bloc” campaign, some effects of the Brexit debate are rippling through to Britain’s economic climate.

According to This is Money: “The Brexit referendum battle has kicked off with a split at the top of [the British] Government and a slump in the pound.” The term “battle” seems like a purposely chosen metaphor for the political postures displayed by the opposing forces on the front line of the Brexit debate.

However, judging from the most recent verbal back and forth between “pro EU,” British Prime Minister David Cameron and his opposing side London’s Mayor Boris Johnson, the mood in the Brexit debate-camp does seem somewhat tense.

Johnson called out Cameron on the apparently questionable results a pro EU referendum could have for Britain.

“Can I ask the prime minister to explain to the House and to the country in exactly what way this deal returns sovereignty over any field of law-making to these Houses of Parliament?” Johnson asked in a statement to the House of Commons on the EU referendum.

“This deal brings back some welfare powers, it brings back some immigration powers, it brings back some bailout powers, but more than that, because it carves us forever out of ever closer union, it means that the ratchet of the European court taking power away from this country cannot happen in future,” Cameron replied, according to The Guardian.

While the Brexit debate continues to evolve, investors of the financial markets are adjusting their investment strategies in ways that seem to be impacting the value of the British pound, which might potentially also have an impact throughout Europe as well.

The British pound fell to its lowest in almost seven years on Monday, reflecting the fearful sentiment of investors caused by the uncertainty surrounding the Brexit debate, according to FT.

Moodys, a bond credit rating business had many investors in their seats on Monday with warnings that a “vote to leave the EU might affect Britain’s credit rating.”

“Exit would be negative for trade and investment in the U.K., given the close links with the EU as the U.K.’s single most important trading partner and largest source of foreign-direct investment,” says a Senior Vice President at Moodys Kathrin Muehlbronner.

With a possible EU exit Britain might also face “lengthy and complex negotiations on a new trade agreement with the EU,” in order to achieve at least half of the benefits that a EU membership would grant.

It has to be said, however, that the present rate the pound is trading at against the dollar and the euro is not only a result of investors reacting to the uncertainty of a possible Brexit.

“The Pound has been hit with a confluence of negative drivers over the past couple of months, some of which include oil weakness, Brexit fear and Fed policy normalization,” says Joel Kruger at LMAX Exchange in an article on Pound Sterling Live.

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