The forex markets reacted most strongly to the United Kingdom’s recent vote to the leave the European Union, with the pound falling sharply against the dollar, euro and other currencies.
While stock markets have gained back many of the initial post-Brexit losses, forex markets remain volatile.
Although it remains unclear exactly how and when the U.K. may exit the E.U, these currency fluctuations are already having economic effects, which are expected to continue.
A look at this eurgbp live chart, outlines the volatility that continues to characterise the once-steady and reliable British pound. There are worries about how the U.K. and other European countries will adjust to the pound’s new weakness against the euro.
The drop in the value of the British pound against the Euro is causing fears across England as the prices of food, energy and other inputs rise.
The United Kingdom relies heavily on imports of fruits, vegetables and meat from the Euro zone. It also buys items such as fertiliser from other European countries, where all of these things are going up in price as the value of the pound falls. Analysts and industry leaders have said they expect some jump in consumer prices.
“It is not a one-to-one relationship but we are likely to see price rises in very basic foodstuffs like fruit and vegetables in the coming months,” Kantar Worldpanel’s Fraser McKevitt told The Guardian.
Economists at HSBC have raised their prediction for annual inflation in England to 4 percent for 2017, which is double the Bank of England’s target rate.
Long-term messages can also be seen in the fall of the pound: the drop in the value of the pound is the market saying that Britain’s exit from the E.U. would result in lower growth potential for the British economy, which would only further erode the pound.
On the upside, a cheaper pound could mean more tourism to the United Kingdom, boosting the local economy, as well as more competitive prices for British exports in Europe and other markets.
As far as the future of the pound and euro, the only thing analysts agree on at this point is uncertainty.
Main Image Source