Brexit has affected the value of Pound Sterling. The currency fell quite significantly affecting the entire financial market. Here are the main reasons for this fall.
Financial markets don’t like uncertainties. Brexit created uncertainties in the market. So, UK has not seen as a safe place for investment anymore. Instead, investors are moving towards US and Europe.
Decline in portfolio investment
London has been a dominant European trading center. It attracts many capital flows. As UK is now outside the EU market, it will make London an unattractive place for trading. So, less capital will flow in, and the value of Pound will drop.
Current account deficit
UK has a high current account deficit as a percentage of GDP. This has been financed by capital flows so far. But if there is less capital flow, the value of Pound will fall to fix the trade imbalance.
Euros becoming stronger
If Euros become stronger for economic reasons, then the value of Pound will drop. So, as the value of Euro will increase we can observe the value of Pound to go down.
Purchasing power parity
If the goods in the UK become more expensive than those of the other countries, then there will be a decline in the demand for UK exports. So, the value of Pound will decrease.
Once the economic situation becomes stable, the value of Pound will be restored again. The Brexit had a great impact on the value of Pound, but the situation is expected to get better soon.