For the United Kingdom, 2016 was a year that will go down in the history books. Defined by the surprising outcome of the European Union referendum, it witnessed a downturn that would see sterling slump by roughly 19 per cent in the three months following the result.
Hitting a 31-year low of $1.2123 on October 11, the pound has since recouped some of it losses, reaching its highest level in months – of $1.2775 – by the year end. Despite this, it remains 12 and 15 per cent lower against the euro and the dollar respectively than it was at the start of 2016.
This places sterling in the position of 2016’s second worst performer amongst major currencies, outdone only by the Mexican peso.
Unfortunately for Brits, this performance looks unlikely to improve in the near future, with the Brexit process continuing to sour investor sentiments. This has led many to suggest that the currency could drop even lower in the year ahead.
As one research analyst explains: “The ongoing battle of words between financial heavyweights on the Brexit topic has added to the anxiety, while hard Brexit concerns continue to encourage sellers to incessantly offload the pound“.
“With the lack of direction in the UK government’s Brexit stance compounding this uncertainty, sterling could be poised for steeper declines moving forward.”
Recent PMI figures offered a chink of light for the UK economy, with December numbers suggesting a robust outlook from the service sector.
Reports also suggested that 2016 saw an all time high in new car sales, boosting the motoring sector.
On top of these recent reports giving cause for a positive outlook, other experts have pointed out that some of the negative forecasts for growth may yet be avoided if a hard Brexit is removed from the cards.
In the words of Scott Thiel, a respected investment officer: “So long as we don’t go down the road of a hard Brexit, the pound will continue to react relatively favourably.”
For investors, this means one very important thing: keep your attention focused on the rhetoric coming from the UK government in the months ahead in order to stay one step ahead of the performance of the pound.