BREXIT STRATEGY: The Rise and Fall of the Sterling


“A positive day for the Australian dollar versus the pound” says Mr. Dayle Littlejohn, a senior trader with Foreign Currency Direct UK office, amidst fiscal uncertainties following the unceremonious ‘Brexit’ from the European Union. The infamous June 24th decision shaving US$2.1 trillion from global world stocks thus sending the Sterling crashing to a 31-yr record low value of US$1.3122, an 11.7 % fall since close of business June 23rd, its lowest level incidentally since the mid-Eighties.

Brexit Strategy

To summarize, the pro-Brexiteers apparently voted ‘Out’ based on stubborn love for ‘King & Country’, blind declarations of Sovereignty, objections to various undue EU regulation and vocal disapproval of present immigration policies whereas the remain camp voted ‘In’ to consolidate EU trade agreements, bolster investment opportunity and prolong the tradition of being an active player in EU markets. The good news for Australians is that while both the euro and the pound are in turmoil, on the flip side the US and AUS dollar can hold enviable positions of strength with beneficial returns on exchange rates promised as days progress, nonetheless the global economy is fragile with many bracing themselves for ‘Brexit’ fallout in the shape of a creeping financial crisis extending outwards from The British Isles.

Another favourable consequence for Australian interests is that those looking for a safe haven could once again turn to W.A Gold stocks prompting a similar surge as witnessed in the 2008 market crash, however the spending power of British tourists currently in AUS will be reduced relative to a dip in UK currency value affecting AUS tourism/ retail sectors with some minor reductions in revenue expected. Week commencing Mon July 11th, the dollar now boasts it’s most competitive currency exchange rate against the Sterling since Oct 2013. Only three weeks ago the pound hovered around the $2.00 mark yet in the wake of the ‘Brexit’ slide we have seen a drop of 30 cents or more to the low $1.70’s region. The significant catalyst in the movement of the money markets will be a perceived state of control ‘or lack of’ at the forefront of UK politics with a worrying absence of a forceful leader taking charge? Why have Nigel Farage and Boris Johnson disappeared into the background one may ask? Hopefully the newly elected PM Teresa May will have a clearer dialogue to present on the matter moving forward.

What may be seen as a motion of shooting from the hip fused in part with an initiative of mild panic, the latest tenant of 10 Downing Street Teresa May now has it all to do. Mark Carney Governor of the Bank of England stands behind his assertion that an interest rate cut may be forthcoming which could see ongoing weaknesses in the Sterling on the back of a robust dollar. Australian Business leaders, Kerry Stokes of Seven Group, Shayne Elliot of ANZ Bank and Gerry Harvey of Harvey Norman have put their heads together to anticipate any rumbling impact facing our home economy. “The Brits have decided to do what Aussies have already decided to do, which is to protect our bordersMr. Stokes told Fairfax Media, “The major concern was being able to protect their borders and they voted for that over economic concerns, he added. Likewise Mr. Harvey does not foresee any lasting impact on a stable Aussie economy stating that the world was quick to panic while Australians at home had the real advantage of making informed decisions without the elements of emotion clouding peripheral vision. “It is too early to predict any long-term economic impact, we have been preparing for both scenarios for many months and we are reasonably well positioned to wait for stability to returnMr. Harvey concluded.

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