Money and Markets

The pound will relive the record-breaking horrors of Brexit night if Britain leaves the EU without a deal

Business Insider US

An anti-Brexit campaign battle bus drives through Westminster. (Getty Images)
  • The British pound could fall as much as 8% the day after a no deal Brexit is announced, analysts say.
  • Such a fall would mimic the drop in the pound on the day after Britain voted to leave the EU.
  • "I would anticipate at least a reaction to the extent we saw after the referendum," Thu Lan Nguyen, a strategist at Commerzbank, said.

The day Britain officially leaves the EU could see the pound suffer losses similar to the night Britain voted to leave the European Union if the government fails to secure an exit deal.

Analysts from Japanese banks MUFG and Mizuho believe the pound could drop as much as 8% in the event of a no deal Brexit, according to a survey of analysts published on Thursday by Bloomberg.

Neil Jones, Mizuho Bank’s head of hedge fund sales, told Bloomberg that in the event of the announcement of a no deal Brexit, the pound would drop sharply and "hit new post-referendum lows."

It would mirror the night of June 23 2016, when the pound plummeted as it became clear that Britain had voted to leave the EU. The pound suffered the biggest single day loss for a G10 currency in recorded history on the day after the vote, falling by around 8% against the dollar.

While Jones foresees a similar scenario if a no-deal Brexit is confirmed, he doesn't believe that the fall would be long-lived. He told Bloomberg: "The sell-off will not last. The pound will recover and trend higher over time."

Jones' view of what might happen to the pound in the event of a no deal scenario was mirrored by Commerzbank strategist Thu Lan Nguyen, who said: "I would anticipate at least a reaction to the extent we saw after the referendum."

While a no deal Brexit is not the base case of virtually any analyst, many do see it as a possible outcome.

John Wraith, a UK-focused strategist at Swiss banking giant UBS, wrote to clients earlier this week and said he now believes a disorderly Brexit is increasingly likely, thanks largely to the political chaos triggered by Prime Minister Theresa May's Brexit white paper. Oxford Economics, a research house, now puts the likelihood of a no deal Brexit at more than 30%.

If the UK can secure a "soft" Brexit, some analysts forecast that the pound could rise as high as 1.41 against the dollar by the end of the year, an increase of close to 7% from its current level.

Deutsche Bank, which made that forecast, backs a combination of "the movement toward a soft Brexit from May, the lack of effective challenge from the Brexiteers and a Bank of England hike in August," according to a report from Bloomberg this week.

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