How will Brexit affect the pound? Euro and dollar changes

THE Prime Minister, Boris Johnson has announced a trade deal with the EU after months of talks.

Just seven days before the final deadline, the UK and Europe have hammered out an agreement governing the future of trade between the two blocs.

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The ink is still drying on the 2000-plus page agreement, which outlines the rules around everything from fisheries and batteries to Ireland and car production.

It came as:

  • There was an eleventh hour row about protections for the UK car industry – which appeared to have been resolved
  • Pizza was delivered to the Berlaymont HQ in Brussels late last night as crunch talks continued
  • The pound soared against the dollar last night on hopes of a deal
  • Already Brexiteers were grumbling about not having enough time to analyse the deal when it comes back to MPs
  • Sir Keir Starmer is preparing to urge his shadow cabinet to back a Brexit trade deal – and could hold a meeting later today to get their backing

But what does a deal mean for the pound, the euro and the dollar? We explain.

How will a Brexit deal affect the pound?

Big announcements such as this usually have significant impacts on currency valuations, and today's is no different.

The pound rose against the dollar and the euro this morning on the news that a deal was about to be signed. 

However, even with a deal secured, analysts warn that markets are likely to be volatile for some time now.

Giles Coghlan, chief currency analyst at HYCM said: “For investors, it is important not to be rash… There will be a period of volatile trading as the market adjusts to UK’s new economic relationship with the EU.

"However, the market will also settle down in the coming months. That’s why it is important not to let the events of the coming weeks distract an investor’s long-term perspective on what the future could bring.”

And the pound is likely to see further fluctuations as analysts examine the deal to understand all the details of the agreement.

Lee Hardman, MUG strategist told Reuters: "The best case scenario for the pound would be if we also see details released form the EU and UK side of things alongside the deal to try and reduce the initial disruption when we shift to a new trading arrangement."

Most people only think about currency rates when it's time to get money for a holiday.

But actually, the strength of the pound has impacts on other areas of your finances including pensions, savings and investments too.

From a pensions and investments perspective, a stronger pound can actually lead to a weaker FTSE as some companies receive their revenues in dollars. That means that a rising pound actually means a pay cut for those businesses.

A stronger pound is also worrying news for the UK's exporters, as their goods become relatively more expensive for overseas buyers.

On the flip side, a strong pound is good news for importers who will get more bang for their buck when buying goods.

The UK imports more than it exports so a stronger pound is generally considered to be good news, and could mean cheaper goods for UK households.

It can also directly impact the goods you buy. For instance, as petrol is priced in dollars, the cost of filling up your car could get more affordable too.

Lauri Halikka, a strategist at SEB in Stockholm said to Reuters: “The trade deal…is positive for the markets and sterling for sure, as some of the risk premium can be erased if the deal will be sealed.

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