United Kingdom and Brexit

Currency Exchange Rates The author of this brief report has been asked to look at the subject of currency exchange rates and what they mean in terms of fiscal policy and the overall economic health of a country.

The questions that will be answered will include whether the currency exchange rates for a country are an economic barometer of a country, the identification of an exchange rate and the comparison of its rate to the United States dollar and the primary factors that lead to the rate of exchange when it comes to comparing one country to another.

While the currency exchange rate is indeed a good overall metric to look at when it comes to economic health, there are other figures and milestones that should get just as much, if not more, weight when it comes to ascertaining the economic health of a country. Analysis As for whether currency exchange rates are a good test for the health of an economy, the answer is a qualified yes. Sure, it is one thing that could and should be looked at.

On the other hand, some financial markets are a little touchy and there are other metrics that are just as important, if not more important, when it comes to figuring out where a country lies. A perfect example of this would be the British pound and its value versus the American dollar or the Euro.

Indeed, the Brexit vote was indeed a big deal but the huge drop in the value of the British Pound is a bit of a knee-jerk reaction and will surely smooth out at least somewhat in the months and years to come. Beyond that, the economic health of the United Kingdom was clearly in question long before the Brexit vote and the vote itself did little to change that.

Third, while the United Kingdom is ostensibly on its way out of the European Union, it will probably be at least two or three years before that actually ends up happening and being executed. Lastly, there is apparently the presumption that the United Kingdom will fail and flounder on its own.

However, that is almost surely folly in the long run as the United Kingdom is indeed a power in its own right even if it is a mere fraction of the power that is desired to be asserted via the European Union as a whole (Wheeler & Hunt, 2016). As for the exchange rate example, the author will stick with the above and look at the rate of the United States dollar versus the British Pound. At present, a single United States dollar is worth about 0.75 British Pounds.

While there has been a lot of tumult and variation in the days since the Brexit vote in June 2016, the rate between the two currencies is still relatively high compared to the last five years overall. For quite a long time, that being from 2012 to early 2016, the value bumped up and down (but mostly down) between 0.60 and 0.70. In early 2016, the rate moved above 0.70 and actually shot up quite strongly in the months before Brexit. However, the rate has been quite chaotic since then.

Even with that chaos, it is still near a five-year high and probably beyond. When it comes to the factors that lead to the exchange rate, it would come down to proven past economic performance in the recent past and how all of that informs what is projected to happen in the future. Generally speaking, the rate will falter (or be chaotic, at least) if the economic outlook is gloomy.