How low could the pound go?

[FishesaPlenty]

Without delving into the depths of dystopian (or even Zimbabwean) fantasy, how low do you knowledgeable people think the pound could go against the dollar/euro after a chaotic Brexit? I know there are some on here with much more of an idea of the situation than any of my business contacts seem to.

I've realised (belatedly) that I need a metric to trigger price reassessments in the case of a chaotic Brexit, or at least a definition of 'chaotic'. ISTM that the markets will probably determine how chaotic it's been and as 30% of our costs come under pressure from Euro increases and 40% from $ increases it seems sensible to use an exchange rate figure to trigger it.

So how to determine 'chaos' in terms of the exchange rate? I'm thinking that parity with either € or $ for a week (month?) or more after Brexit would be a good pointer that things haven't gone well?

Is that a naive approach? Our industry norm is to use fuel prices to determine a potential surcharge on top of a contract price, but that probably won't work in a chaotic Brexit scenario.

I'm not looking to model my costs for various scenarios (done that! As far as it's possible...), or looking to establish a scale of increases. I'm just looking for a trigger point where I can reasonably suggest that an almost force majeure event can be considered as having occurred, and the reasonableness (from the point of view of a slightly dim/uninterested client) of using the exchange rate to define 'chaos' , and at what level will the exchange rate indicate that we're fucked 'chaotic'?

Any thoughts?

[SouthChinaSea234]

The pound was significantly lower against the euro in spring 2009 than it is now. I would not expect it to sink below parity - not least because the eurozone has problems of its own which will be exacerbated by Brexit.

[Greatnorthwoods]

I am expecting 1:1 against the $

[FishesaPlenty]

The pound was significantly lower against the euro in spring 2009 than it is now. I would not expect it to sink below parity - not least because the eurozone has problems of its own which will be exacerbated by Brexit.

Thanks, that's what I was looking for really, an indicator that the general (business) public would accept as being significant enough to force a contract price renegotiation.

[MockersthefeMANist]

If BJ and his Government-of-all-the-talents make good on all their spending promises they will have to crank up the printing presses and soon you will need a wheelbarrow to carry your cash to buy a coffee.

[ListeningQuietly]

The pound was significantly lower against the euro in spring 2009 than it is now
NOT TRUE
See this chart
www.poundsterlinglive.com/bank-of-england-spot/historical-spot-exchange-rates/gbp/GBP-to-EUR

The pound will not go much below parity with the Euro because it has a stable government and assets that can be held till the storm passes.

[ListeningQuietly]

Parity with the US dollar may also happen
www.macrotrends.net/2549/pound-dollar-exchange-rate-historical-chart
for the first time since 1985

[ListeningQuietly]

The Yuan rate is the more depressing one ....
www.poundsterlinglive.com/bank-of-england-spot/historical-spot-exchange-rates/gbp/GBP-to-CNY

[chomalungma]

One thing is - this has started some very interesting discussions with DS about exchange rates.

Especially if we had gone into the Euro....I wonder what rate we would have got?

[ListeningQuietly]

choma
At that time the offer was around parity
but the UK economy was more useful to the EU outside the Euro than in it

[AmeliaE]

I have no economic background whatsoever but I would say it would get 1:1 with Euro. Maybe a little less on the days pre and post Brexit.

[Jsmith99]

If we somehow manage to stop Brexit, I would expect the £ to rise in value substantially, and quickly, against both the $ & €.

If we leave with a deal and quickly start negotiations about a free trade deal, I would expect the £ to rise in value, but not by much.

If we crash out without a deal, I expect the £ to fall further against the £ & $. It is highly likely that £1 will be worth less than €1, but we can only guess by how much. The scale of the £’s fall against the $ will depend on the US economy and interest rates, and the market view on the likely outcome of next year’s presidential election.

[Bloomburger]

DH reckons no-lower than parity. It's part of his job.

[frumpety]

So if the markets thought we were heading for a crash out no deal brexit then would the £ drop, but if the outcome was then revoke at the last minute, it would rise suddenly ?

[Jsmith99]

Yes, frumpety, that is highly likely.

[cherin]

It’s weird how you get used to anew “normal”. When I moved to the U.K. the £ was around 1.45 to the €, a few months ago I was begrudging an exchange rate of 1.17 before going on holiday....yesterday I called DH to say: quick! It’s 1.1, let’s change some £ in € (-before Boris opens his big mouth again-)!!

[chomalungma]

Someone somewhere is making a lot of money on this...

[cherin]

Not me!
But yes, turbolent times are perfect for speculators. And people with inside knowledge can make real bucks out of somebody else’s troubles
Just like in war there’s always been people making money to the side :-(((

[chomalungma]

But yes, turbolent times are perfect for speculators

I've still got 30 Euros I brought at 1.15 to the pound!!

[CameraTime]

This is probably a dumb question, but how do people make money out of stuff like this? Is it that you'd buy a load of €/$/¥ now, and then if the pound falls after Brexit you convert the foreign currency back to £?

[Greatnorthwoods]

CameraTime

Basically yes

[chomalungma]

Is it that you'd buy a load of €/$/¥ now, and then if the pound falls after Brexit you convert the foreign currency back to £

I think there's a thing called hedging - or something along those lines.

A promise to buy / sell currency at a certain rate in a weeks time, other people agree to buy it - and then people watch the price. If it goes in your favour, you've made money, if not, you've lost money and someone else has made it.

[lljkk]

how do people make money out of stuff like this

Shorting... you make a bet with the financial markets that there will be big losses, basically. Not an actual bet, rather a promise (contract) to sell the currency at a specific price later. This only works out as seller profit if you can buy the currency at an even lower price than you promised to sell it. Then there's a promise to pay interest if there is delayed delivery of the 'cheap' currency. So it's a high risk type of bet if you aren't sure of the timing when the item will lose value, but works well if you figure out that the market will fall when others are still expecting prices to rise (and so they will have made promises to buy at a high price).

The Big Short film, very good, kind of explains this (but dealing in property rather than currency).