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Brexit and its Impact on the Pound in the Foreign Exchange Market

Pilbeam Keith ()
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Pilbeam Keith: City, University of London, Department of Economics, London EC1V 0HB, United Kingdom of Great Britain and Northern Ireland

The Economists' Voice, 2019, vol. 16, issue 1, 5

Abstract: In this paper we outline the impact and likely future impact of Brexit on the pound. We argue that Brexit implies a significant depreciation of the pound and the degree of depreciation required is heavily linked to whether there will be a soft or hard Brexit. We find that the pound has had broadly similar depreciations to date against both the dollar and the euro. Brexit has considerably raised UK economic policy uncertainty and this, in turn, has at times led to an significant increase in future implied volatility of the pound. While there is an overall link between the state of the ongoing Brexit negotiations with the European Union and movements in the pound in the foreign exchange market, the link is not especially strong unless the perception that the negotiations are going badly has exceeded 60%.

Keywords: Brexit; economic policy uncertainty; implied volatility; pound (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/ev-2019-0026

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