Brexit has greatly affected the sterling. The British pound is at its lowest point in two years and more volatility is expected after the no-confidence vote against UK Prime Minister, Theresa May.
Sterling had been rising until May’s decision to cancel a vote on Brexit. Since the decision earlier this week, the pound has fallen to $1.2490. However, the pound has recently rallied after the no-confidence vote. That may be an indication that the markets expect May to remain prime minister, even though she vowed to step down before the 2022 election.
What economists believe about sterling
Economists like, Kallum Pickering, senior UK economist at Berenberg, believes that the UK’s economic volatility will hurt the pound in the long term.
‘Higher volatility lowers sterling — that's been the story over the last two years. In the long-term, I think sterling is still undervalued. But in the short-term, the risks are decidedly tilted to the downside,’ said Pickering.
FTSE 100 rises despite volatility
Despite the turmoil, the FTSE 100 rose at the end of the trading day on the strength of China cutting tariffs on imported cars. However, the markets also possibly stabilized on the expectation May would still be prime minister after the vote. After May won her no-confidence vote, the sterling rose 1%.