According to this article by the Economist, the British Pound's quick but significant depreciation last week is cause for concern on a number of fronts. The sudden dip has largely been blamed on computer algorithms reacting to a speech by French president Francois Hollande pushing for a "hard Brexit". Although this speech was of little true policy implication, the algorithms compounded selling after selling of British Pounds, causing the currency's value to plummet overnight. That being said, hypersensitive algorithms are not the only cause for concern on the part of the British. Brexit, compounded by a generally anti-immigrant and increasingly anti-business tone of the Conservative Party has many investors worried. While some have brought up the fact that currency devaluation can be good for trade, unless a currency is overvalued to begin with, devaluation can cause harmful shift in the international terms of trade. Britain is also a net borrower, meaning its economy is dependent on the money of foreigners seeing British markets as appealing, a fact that could compound the effects of any anti-business policies implemented in the coming future. So although this one blip may be just that, Britain is hardly out of hot water yet, and may actually be in store for far worse in the coming months. All this could also have implications for the US, as we have economic ties with England and the EU.
Link: https://www.economist.com/blogs/buttonwood/2016/10/currencies
Its amazing how devisive politics in one country can go on to create economic problems for so much more. The pound is taking a beating and it will be interesting to see how the UK responds to this and how/if it ends up affecting the US.
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