The United Kingdom’s currency, the Pound Sterling, fell to a 31 year low to the US Dollar on the 3rd of October and ten percent overnight in the Asian markets on the 7th.
The first incident was due in part to Prime Minister, Theresa May, announcing on the second of October that she would trigger Article 50 of the European Union Charter, which starts the separation process from the E.U. by the end of March 2017. The British stock market prices have risen in reaction to the fall of the Pound Sterling and the stocks have reached their highest level in the past 16 months.
The second fall was the result of multiple factors, one of which was The Bank of England’s decision to cut interest rates, a move forced on the Bank by the vote of U.K. citizens to leave the E.U. The exact opposite has been happening with the United States Federal Reserve which has further pushed the pound’s value down compared to the U.S. Another of the many factors is that the import/export levels for the United Kingdom have not been positive or even for a number of years.
When the International Monetary Fund’s Chief Operations Officer, Derek Bills, was asked about the IMF’s reaction to the drop of the pound he said, “It does not react in any way. The Pound Sterling is a free floating currency.”
As for how this will affect that UK’s exit from the EU and its relationship with other EU countries, Bills said, “It really depends on the terms of the exit agreement the U.K. can negotiate with the E.U. This is a big unknown at the moment.”
With the Pound’s fall, some parts of the UK’s economy may benefit from the deprecation of the Pound Sterling. According to Bills, tourism and export manufacturing will do well and imports into the UK will become more expensive.
As for the recovery of the currency, there is not much knowledge as it depends on many factors. If the Pound continues to fall, the IMF will not interfere.
The Pound Sterling is in a possible free fall once this separation is finished, making the recent drop nothing in comparison. If this does indeed happen, the citizens of the U.K. will have to deal with harsh import prices of European and American made products until the currency is once again stabilized.
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