Carney Says Brexit-Hit Pound ‘Looks Like Emerging Market Currency’
Pound volatility is at ’emerging-market levels‘ and has ‘decoupled from other advanced economy pairs’ with U.K. assets set for a ‘substantial repricing’ exercise once the Brexit outcome becomes known, according to Bank of England Governor Mark Carney. In other words, Carney is saying that the Sterling is now acting like that of an unstable nation and the valuation of assets from property to company stocks/shares depend largely on the outcome of Brexit. A no-deal Brexit will destabilise the currency further, which will see an asset price plunge.
Carney made the comparison, which echoes a long-standing quip on trading desks, at an event in New York on Tuesday. When asked to comment on the current level of the pound, the governor initially dodged the question, before highlighting the heightened level of volatility of U.K. assets, reported Bloomberg Tuesday 10th September.
“Sterling volatility, as you would know, is at emerging market levels and has decoupled from other advanced economy pairs for obvious reasons,” Carney said. “A variety of other indicators show financial markets are going to move substantially in one way or another depending on the outcome of Brexit.
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Britain’s currency has seen some extreme highs and lows over the last six months since its massive June 2016 fall, as the endgame approaches, rallying to GBP/ $1.32 in May before plunging below $1.20 earlier this month. Today, the price has pulled back to $1.24 as the threat of a no-deal Brexit has marginally declined.
The turmoil has made Sterling one of the most volatile of all the major economies around the world and even raised volatility above that of the Turkish lira earlier this year.
The currency has fallen close to 20% since the 2016 referendum and its fate remains highly dependent on the outcome of Britain’s exit from the European Union. Sterling would rally to $1.33 on a Brexit deal and plunge to $1.10 on a no-deal exit, according to a recent Bloomberg survey.
A one-month gauge of price swings fell to the lowest in over a month Tuesday, with a similar move seen in the three-month as lawmakers voted to force Boris Johnson to seek a Brexit delay if he can’t secure a deal next month. The outcome of any strategy on both sides of the debate is, as yet, unknown.
Carney also said that a global economic slowdown was underway, but there was fiscal space to counter the situation, adding that he doesn’t see negative interest rates as a tool in the U.K.