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The Impact of Brexit on Stocks and Currencies

 
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adamsmiths



Joined: 18 Aug 2016
Posts: 5

PostPosted: Tue May 09, 2017 8:09 am    Post subject: The Impact of Brexit on Stocks and Currencies Reply with quote

Recent political developments in the world has seen the United Kingdom hold a referendum on whether Britain should stay with the European Union as a member or not. Not only does this event have vast political and cultural implications, the overall landscape of stock and currency trading in the U.K is being affected the most.

The change in the political agenda of the United Kingdom, following the Brexit has had adverse implications on the UK stock market. As a result there is a change in the valuation of the UK’s currency system as well. A major reason for this is the elongated trade negotiations with companies belonging to the European Union due to a change in the system. As the United Kingdom is a major economic power in Europe, all these factors have different effects on the European market as well as their own. The major effects can be understood on the stock market and the currency market, which will be discussed in brief below. (Information credit: https://www.easymarkets.com/eu/

• Effects on the Stock Market :-

Brexit has had limited initial impact on the stock market but began to show signs of volatility as the negotiation process extended. Companies dealing with international clients will have to find new secure ways of dealing with companies from the European Union which will provide a sense of certainty and stability.

Of course, Brexit does not mean all organizations or financial institutions will be affected negatively. Banks and financial stocks which have struggled in past financial crises, can see a period of relative growth. This is due to the fact that borrowers are less likely to default on a loan and more likely to spend on luxury items. (Information credit: easyMarkets)

This, however, brings bad news to other sectors, especially those producing everyday consumer goods. These companies have had huge hikes in valuation in recent times, and would stand to underperform under such market conditions.

• Effects on Currency

The status of the health of an economy is directly reflected by its currency valuation. Typically, the Pound Sterling is estimated to shrink 6 percent in value over the next 15 years. A lot also depends on the currency pairs like its pairing with Euro or the American dollar. This is also largely due to the extended on-going negotiations with the European Union. All of these factors have led to the value of Britain’s currency to fall and the uncertain future makes it hard for even economists to predict for the remainder of 2017.

Conclusion

Thus, Brexit has had an adverse effect on both the commodity and the foreign exchange market. Traders should keep these factors in mind and be aware of any further political developments before making any investment choices.
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