Currency Corner: As Britain leaves the EU, what lies ahead for the pound?

On Brexit Day, there’s only one currency pair to look at, says Dominic Frisby – the pound and the euro. Will sterling continue to strengthen, or will the euro rebound?

Editor’s note: A quick note before we start today – we’d love to get your opinion on MoneyWeek magazine, Money Morning and the website. I’d really appreciate it if you could take ten minutes to fill in a short survey – it’ll help us to focus our efforts on making sure that MoneyWeek delivers exactly what you need when it comes to managing your money.

As today is the day that Great Britain and the European Union formally “part company”, there’s only one currency pair I can really look at today and that’s the pound and the euro.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Instead of looking at GBP/EUR, which shows how many euros there are to the pound, and is the way in which the pair is usually quoted, I thought I’d flip it and look at EURGBP. That is, how many pounds there are to the euro. Currently EUR/GBP stands at £0.84. It takes 84p to buy a euro.It’s amazing to think that back in 2000 at one point, you could buy a euro for just 56p.

I had a job that took me out to France once a fortnight at the time, and I remember marvelling at how cheap – if that’s the right word – Omega and Ebel watches were. Not today. In late 2008, however, the pair almost reached parity. A euro cost 98p. 

Advertisement - Article continues below

So that’s the long term range – 56p to 98p. For some reason, I find the pair easier to consider this way round.

The peak of post-referendum-vote-cock-up of course, at least as far as sterling is concerned,  came in October 2016, with then-Prime Minister Theresa May’s conference speech and the infamous Flash Crash. EUR/GBP went to 94p. We retested that level in the first part of 2019 at 93p, and sterling has been strengthening ever since. Today at 84p we are at at 30-month highs (barring election night madness).

When this chart is falling, sterling is strengthening – it takes fewer pennies to buy a euro. We now have a clear triple top in place. The lower end of the three-year range (83-93p) is being re-tested. The current direction of travel – the trend – is clear. It’s lower. Confirmation will be a break below 83p, a break below that range – but this one could be heading towards the low 70s over the next 12 months or so.

Will the euro rebound, or will sterling continue to strengthen?

Going long the euro here against the pound would be fighting the trend. That said, a range trader might take the view that the bottom end of the range at 83p will hold, and that the euro will strengthen against the pound.

We are betting on trade deals, monetary policy, political machinations, whether Brexit will work, and much more besides. But strip all that out and just focus on the technicals and we have a simple situation. The trend is down. Is that range going to hold, or post Brexit, is the pound going to return to more historical normal levels against the euro?

I don’t see us going back to the heady 2000-days of 56p buying you a euro I must say. Nor do I see us going back to the crisis levels, where a euro would cost you more than 90p. But I do see a return to more “normal” levels in the middle of that range – in the low 70s – as a distinct possibility, a likelihood even.

Advertisement - Article continues below

The currency markets are like an ongoing commentary of political and economic activity. As Britain determines its economic destiny over the next six months through the deals it forges and the decisions it makes, the forex markets will deliver their verdict. 

Some like a weak currency because it boosts exports, but ultimately a strong currency is a sign of good governance, and a weak currency of bad. If you need proof, just look at Switzerland or Singapore compared to Argentina, Venezuela or Turkey. 

How well or badly is Brexit working? Are Boris Johnson and his government making the right decisions? The pound will be a guide. And was it the right decision to leave the EU? Often the market’s view on that question can be seen in EUR/GBP.

• Dominic’s new book Daylight Robbery: How Tax Shaped Our Past And Will Change Our Future, published by Penguin Business, is available at Amazon and all good bookshops. Audiobook at Signed copies are available at




The currencies to bet on this year

The US dollar could be set to weaken this year, while the euro, Canadian dollar and the Swiss franc could be good bets for optimistic traders.
17 Jan 2020

Money Minute Wednesday 4 December: Britain's economic sentiment and American job figures

Today's Money Minute looks ahead to the UK's latest all-sector PMI survey, and America's private payrolls report.
4 Dec 2019

Welcome to Currency Corner – your weekly guide to the world’s biggest market

Forex is by far and away the biggest market in the world, with an average daily trading volume of over $5trn per day. Here, Dominic Frisby looks at th…
3 May 2019

The nature of money

The best currencies are based on a strong democracy, strong institutions and a firm attachment to both the rule of law and the protection of private p…
28 Feb 2019

Most Popular

UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019