Overnight, Sterling fell to its lowest level in 31 years. Over the course of just two minutes in the early hours of Friday morning, our currency lost more than 6% of its value.
The good news is that the drop in Sterling will be good for Wealthify customers’ Plans. All investment styles, from Cautious through to Adventurous hold plenty of currencies outside of Sterling, such as US Dollars, Japanese Yen and Euros. All the currencies will be doing well today which will add to overall performance. Why not check your dashboard to see how your Plan is performing.
The curious thing is no one knows exactly why the Pound fell, though many are blaming French President Francois Hollande’s comments about Brexit. He was pushing for a hard line approach on Britain’s exit from the EU which would not be good for the currency.
So what actually happened? Some investors make decisions based on real time algorithms, that scan global markets and headlines for news. It seems likely that overnight they may have picked up on this news story and sold Sterling. If enough people do this at the same time it can have a dramatic effect, with other investors’ systems then compounding the problem by seeing the fall and selling more.
Since its large drop overnight, the Pound has recovered a little, but it is still down this morning. Yesterday £1 would have brought $1.26, whereas at the time of writing this blog, it will only buy $1.23 - a big move in the world of currencies. This is not a pretty picture, especially if you consider that on June 23rd, the day of the EU Referendum, a Pound was worth $1.43.
Source: Bloomberg 07.10.2016
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The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.