Financial markets are considering the likelihood of a hard Brexit more and more, which would mean the British leave the EU without a deal regarding the divorce. This translated into a downward spiral for the exchange rate of the British pound sterling. Last week, the British currency reached a low with a rate of 1.12 euro. The pound sterling has also dropped against the dollar.
Because of the depreciation in currency values of last Tuesday, the exchange rate reached its lowest point against the euro since last November. With an exchange rate of 1.29 dollar, the pound had already achieved its lowest point against the dollar. This was the weakest point since September last year. The exchange rate also dropped against the Swiss franc. The decreasing trend was started after Mark Carney, of the Bank of England, said the chance of a Brexit without a deal was “uncomfortably high” last Friday. On Sunday, Liam Fox, minister of trade, also said the chance of a hard Brexit was about 60 per cent.
Earlier, the Bank of England increased interest rates, which usually results in an increase in prices. According to currency traders this is a confirmation that the deprecation in currency values is politically motivated rather than economically.
British trade is very dependent on the eurozone for the import of fruit and vegetables. Various European countries are in the top of the UK’s most important trade partners. According to government statistics, dependency on the European countries has increased considerably in the last ten years. Due to exchange rate changes, import will become relatively more expensive for the British.