Usually an unshakable currency, the British pound is losing its stiff upper lip amid a wild domestic crisis.
In the past two days, the pound has lost more than 3% against the rand – on Friday afternoon, the pound was worth R18.22. Two years ago, amid the Nenegate crisis, it traded at R24.11.
Wichard Cilliers, director and head of dealing at TreasuryONE, the biggest independent treasury services provider in SA, says the pound is usually an extremely stable currency, but Brexit fears have triggered massive fluctuations (volatility) in the currency.
This graph, compiled by TreasuryONE, shows how volatility in the pound has increased, compared to the rand (starting from the same point in May):
This chart measures the likelihood of extreme volatility in a currency over the next month:
It shows that the market expects a 17.1% likelihood of extreme volatility in the rand over the next month, compared to 14.3% in the pound.
In the past, the pound averaged at around 6% to 7%, says Cilliers.
The pound is now more volatile than emerging market currencies like the Brazilian real:
The volatility was triggered by Prime Minister Theresa May’s proposed new 585-page Brexit divorce deal with the European Union, presented on Thursday.
Her own Conservative Party members have objected to the deal, and a number of senior politicians have quit - including the Brexit minister.
Leading Brexiteers Jacob Rees-Mogg and Steve Baker plus several other pro-Leave Conservative MPs submitted letters of no confidence in the prime minister. If the number of letters reaches 48, there'll be a no-confidence vote, reports Business Insider UK.
They refused to advocate the agreement negotiated between May and the EU, which will keep the UK in a customs union with the EU for years after Brexit, and potentially create checks between Northern Ireland and Great Britain.
May's own political future is in peril, and there is now a much greater chance that the UK will be forced out of the EU without a deal. Polls show that less than a fifth of the population support May's new deal.
A snap election could be next, and the market is nervous that Labour's Jeremy Corbyn - who has plans to nationalise businesses and raise tax - could be the next prime minister.
Cilliers says the only thing that can save the pound from more losses would be a new referendum that resulted in the UK population voting against Brexit. But at the moment it looks as if a “hard Brexit” – the UK leaving the EU without any tariff and immigration arrangements in place – is the most likely scenario.
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