Britain's leadership change, with Theresa May taking over from David Cameron, has boosted the value of the pound, but not by much as foreign exchange traders believe it will fall further.
Britain’s leadership change has boosted the value of the pound – a bit.
At one stage on Wednesday it hit its highest against the dollar in more than a week and rose against the euro.
But there are still a lot of foreign exchange traders ready to bet it will fall further in the months ahead, perhaps by another 10 percent against the dollar.
Those traders are sellers with the result that sterling’s gains were not sustained.
Sterling was one of the main victims of last month’s referendum. It fell 14 percent against the dollar and is still 11 percent below its value just before the Brexit vote.
Exports not to the rescue
In the past a substantially weaker pound has boosted UK exports, but experts point out that this time the effect will be mitigated by the fact that the global economy is performing poorly.
Recent estimates show that a 10 percent reduction in UK export prices leads to a four percent rise in exports, according to Odendahl and Springford.
They note that global trade grew by just 2.5 percent over the past year and will expand by even less this year, while today’s multinational production networks and supply chains mean a weaker currency helps exporters a lot less than in the past.
Next move is the Bank of England’s
Currency traders are also waiting to see what the Bank of England will do at its policy meeting on Thursday.
It is expected to cut interest rates and possibly also expand its 375 billion pound (448 billion euros) bond-buying programme.
But with policy already reaching its limits, many in the financial world doubt how much bang for its buck the Bank can now get.
Also, no one knows what Britain’s post-Brexit trade deal with the EU – where 40 percent of UK exports go – will look like.
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