Brexit woes spur Brits to buy weak dollar
More and more Brits are moving to buy dollars due to weakness in the greenback coupled with fears over a plummeting pound.
The Dollar Index fell 0.5% on Monday, trading at levels we’ve not seen in over two years.
This sharp dollar sell-off is viewed by internationally-minded Brits as an opportunity to purchase dollars as they fear a steep plunge in the pound in the event of a no-deal Brexit – which is looking increasingly to be the case.
The dollar is being impacted by the strength of the economic recovery in the U.S., the presidential election which generates uncertainty as well as the heightening tensions between the U.S. and China.
At a time when the greenback is down, Brits are moving in to buy the currency as a substantial drop in the pound can be expected should Britain crash out of the EU in December without a deal in place.
Low sterling will help to reduce Britons’ purchasing power and result in a fall in UK living standards. Furthermore, a weaker sterling means imports are costlier, and mounting costs are then passed on to consumers.
That said, a fall in sterling is good for exports, according to some analysts. However, around half of Britain’s exports depend on imported components, which will be more expensive if the pound falls in value.
Moreover, a weaker pound is not welcome news for British expats, amongst others, who receive income or pensions in sterling, as well as Britons wishing to travel abroad.
Although the Dollar Index marginally moved up on Tuesday after falling to a two-year low, the focus is now on the Fed’s outlook, which may see a move in policy stance.
As it stands, the greenback is having its worst month in almost 10 years, losing 3.9% this month.
Against the current backdrop of an ongoing coronavirus spread in the U.S. placing the economic recovery in jeopardy, as well as the huge EU fiscal deal, it looks as though the dollar will be under quite a bit of pressure for a while yet.
Therefore, Brits concerned about the Brexit fallout will move to make the most of the opportunity to purchase dollars.