Forex Sky Eye APP News: According to Bloomberg , the fluctuations in the pound exchange rate are now becoming more and more similar to those emerging market currencies.
With the rise in the probability of a no-deal Brexit, the pound recorded its biggest monthly decline since October 2016 in just past July, and its 90-day correlation with emerging currencies has also risen to its highest level in nearly three years.
Given the continued strengthening of the US dollar, as well as the vulnerability of both the UK and emerging markets to political risks, this relationship may receive more attention in the coming weeks.
The pound is currently at a record low relative to emerging markets. The ratio of the pound to the MSCI EM Currency Index has fallen for the third consecutive month as Prime Minister Boris Johnson said the UK is determined to leave the EU on October 31, whether or not it has reached an agreement on trade and future economic cooperation.
Possible disruptions to business and capital flows have caused the pound to fall by 2.7% in the four days to Tuesday. The pound volatility against the US dollar exceeds that of many emerging market currencies, such as Mexican peso , Colombian peso and Brazilian real .
Models from Bloomberg Economic Research show that for every 1 percentage point increase in risk of no-deal Brexit, the GBP 1 trade-weighted exchange rate will fall 0.2%. If the risk of a no-deal Brexit drops to zero, the pound trade-weighted exchange rate may rise by 9%; if there is no-deal Brexit, the pound may fall by another 13%. The upside is that the depreciation of the pound may put the UK in an advantageous position in competition with emerging markets. Although the EU's share of UK exports is still 49%, while the proportion of emerging markets is slightly higher than 22%.
