One of the most significant geopolitical events of the last 10 years was the Brexit decision to separate from the Eurozone. The vote ultimately impacted financial markets in ways that few analysts had anticipated, and the region is still feeling the ramifications of the outcome.
There have been many attempts to explain why Brexit unfolded in the way that it did. Similarities exist with respect to the 2016 US Presidential election that soon followed, as there appeared to be significant differences between the data obtained by political pollsters and the final results of the actual election.
Needless to say, the global election process may never be the same again. To make matters worse, markets could see renewed volatility in the stocks if investors start to adopt a safe haven perspective and sell instruments like the FTSE 100. The FTSE 100 stock benchmark is typically thought of as the central gauge of strength in the UK corporate economy, as it includes most of the major companies that operate within the region.
Several British politicians have floated the idea that the EU referendum could be reversed now that the voters have ‘had more time’ to think about the outcome of the Brexit election. At this stage, it is looking highly unlikely that a few scattered politicians will be able to overturn such a pivotal event but it should be remembered that there is nothing that would prevent a legislative policy reversal at a later date.
The recent political comments did have an impact on the value of the British Pound (GBP) when viewed against the value of the US Dollar (USD). This makes the GBP/USD one of the most traded currency pairs in the world. When dealing with the foreign exchange markets, the first currency is the base currency and the second is the counter currency. In the chart above, the rising price valuation suggests that the GBP is now worth more than $1.40 US Dollars. This is a strong rally when compared to the valuations seen during the middle parts of last year and this suggests that investors are not buying into the possibility that the Brexit vote outcome could be reversed.
For the UK economy, the recent political discussions have taken some of the focus off the Bank of England (BoE) which is a central bank that has some important interest rate decisions ahead of itself this year. The UK economy tends to experience inflation volatility at a rate that is above average for a developed economy and so investors with global exposure in these areas will likely pay strict attention to these elements over the next few quarters.
Currency values have a strong influence on imports and exports and this, in turn, has a significant impact on annual GDP levels. From a global standpoint, these areas can also have a significant impact on policy so the developments here are far-reaching in the ways that will likely influence the lives of UK citizens.