The ripples created by “Brexit” over the global currency market is clearly visible now as several currency markets including rupee is facing its serious consequences. Before exploring its impact on various currency markets and rupee, let us first comprehend what does this word actually mean. “Brexit is an abbreviation of “British exit“, which refers to the June 23, 2016 referendum by British voters to exit the European Union.”
The impact of brexit is such that it has caused severe volatility in the global financial markets which include currency market. It has given a big jolt to currency markets which includes rupee as well i.e. the worst hit in this scenario has been the currency market. Let us try to comprehend the connection between Brexit and currency market through following explanation
Q1. How did Brexit impact the currency market?
As a result of Brexit the British sterling pound crashed 8% against the dollar over the previous trading session. The British currency witnessed an all time low in 30 years that has added uncertainty over the future value of the pound. Further, in comparison to Yen it dipped sharply. Some have even forecasted that as compared to global stocks pound will crash more severely over the next year.
Q2. What does it mean for the US dollar?
A weak pound means strong dollar. The dollar has more than 50% share in global currency market turnover. This makes dollar to be a safe bet at times of uncertainty. The dollar has gained strength with 2.7% rise in its value in past 2 days and is expected to rise further until the implications of the British votes are clear.
Q3. Why should it be a matter of concern for emerging markets ?
Most of the capital flows in dollars to the emerging markets hence, an impact is observed on local currency levels. Be it Hong Kong dollar, Malaysian ringgit or Korean won, a strong dollar implies a weak emerging market currency. The impact on emerging market currencies like Indian rupee is such that it is trading weak against the dollar.
Q4. What is the impact of Brexit on the level of the rupee?
Since the British verdict on June 23, 2016, the rupee has touched a new low level against the dollar where a loss of a rupee has been observed against the dollar. As far as India is concerned, the RBI (Reserve Bank of India) is closely monitoring the developments and might intervene by selling its stock of dollars in order to maintain a stable external rupee value.