Why the Pound Is Showing Nervousness after the UK Election
British pound falls
A country’s currency plays a big role in its economy. The movement of a country’s currency reflects the health of its economy.
During various important events in an economy, it’s important for investors to keep an eye on a country’s currency, as it reflects the current economic situation.
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When the currency shows stronger movements compared to various other currencies, its economy is likely also showing stronger movements. If the currency weakens, its economy is losing investors’ confidence.
On June 9, 2017, the British pound (FXB) fell to nearly an eight-week low after the announcement of the United Kingdom’s election outcome. As of 8:40 AM EST, the pound had fallen nearly 1.6% against the US dollar (UUP) (UDN).
British pound during Brexit
On June 24, 2016, after the announcement of the UK (EWU) referendum’s outcome, the pound fell nearly 10% against the US dollar (QQQ) (SPY) and hit a 30-year low. The drastic fall in the pound indicated huge uncertainty about the United Kingdom, which voted to leave the Eurozone (VGK) (EZU).
In the present environment, the weakness in the pound indicates that the shortfall in Theresa May’s Conservative party’s majority could cause a delay in Brexit negotiations. It also indicates that instability in the political environment could cause various problems for businesses.
In the next part of this series, we’ll analyze the performances of the major indexes.