WHAT IS BREXIT?
Brexit – British exit – refers to the UK leaving the EU.
A public vote (known as a referendum) was held in June 2016, when 17.4 million people opted for Brexit. This gave the Leave side 52%, compared with 48% for Remain.
WHAT IS THE EUROPEAN UNION?
The EU is an economic and political union involving 28 European countries. It allows free trade, which means goods can move between member countries without any checks or extra charges. The EU also allows free movement of people, to live and work in whichever country they choose.
WHY YOU SHOULD START YOUR TRADING THIS WEEK
· WHY BREXIT COULD HARM THE POUND
The British exit, or Brexit, introduces a lot of uncertainty in financial and investment markets. Because forex markets are naturally focused on the short term, new instability usually precedes a sell-off. Nervous forex traders are likely to dump the pound, move to more stable currencies and wait until the newly independent United Kingdom proves it can be stable.
Another reason for the pound’s likely struggle after Brexit is the United Kingdom’s large outstanding debt. By the time the referendum vote takes place, the U.K. national debt will reach past 1.72 trillion pounds. This represents approximately 90% of the country’s gross domestic product (GDP). If leaving the EU triggers a recession, as the International Monetary Fund (IMF) and British Treasury have predicted, the British government may struggle to meet its debt obligations.
· THE US DOLLAR AS A SAFE HAVEN
Ever since the Bretton Woods conference, the U.S. dollar has been the de facto reserve currency for the world. Backed by the full faith and credit of the U.S. federal government and strengthened by the impressive productivity of American workers, the U.S. dollar has historically been a safe haven for currency traders.
· UNCERTAINTY WITH THE EURO
There is also potential for a euro flight if the United Kingdom pulls out. Losing the United Kingdom threatens the political and economic stability of the entire EU, which already suffers from internal conflict and banking issues. The clear winner from ongoing drama in the continent would be the U.S. dollar.
· GBP/USD COULD TUMBLE DOWN
Currencies are always affected by trade balances. Britain’s current account deficit has been widening for some years now and Brexit will put a likely stop to the inflow of foreign capital. This means the UK would lose its position as being a prime investment location. What eventually will follow is a weakening of the pound sterling, to address the imbalance created. Experts are predicting similar downs for the British pound like what happened following the Brexit referendum. The GBP may go down as low, perhaps more to the tune of 1.20 against the USD.
Prof.Dr.Rashmi Gujrati , Regulatory board Member of InTraders Academic platform Turkey