The pound now an emerging-market currency in all but name

The pound has become more similar to a liquid emerging market currency than a core G10 currency, according to analysts at Bank of America, who say that Brexit has turned it into a mirror from the “small and shrinking” UK economy.

Writing to clients on Tuesday, exactly four years after Britain's referendum on EU membership, Kamal Sharma said that movements within the currency since June 2021 have become “neurotic at best, unfathomable at worst”.

He added that sterling is beginning to change into a currency that resembles the underlying reality of the British economy: small , shrinking with a growing dual deficit problem.

Safest currencies within the world

Traditionally, sterling continues to be area of the so-called G5 currency group – alongside the dollar, the euro, japan yen and Swiss franc – as one of the most heavily traded and for that reason safest currencies on the planet.

But because the Brexit vote, it is better matched using the Mexican peso compared to US dollar.

“The pound increasingly resembles the more liquid emerging market currencies rather than a core G10 currency,” Mr Sharma wrote inside a research note to clients.

Multi-decade low

Sterling plunged to some multi-decade low from the dollar in mid-March, before recovering after the US Fed and other major central banks stepped directly into cool the dollar.

But on-off trade talks between your UK and the EU have hurt sentiment for the pound.

Headwinds are continuing to construct for sterling, said Mr Sharma, given the year-end deadline for finalising the EU trade relationship and the country's persistent current account deficit.

“We believe sterling is incorporated in the procedure for evolving right into a currency that resembles the actual reality of the British economy: small and shrinking having a growing dual deficit problem similar to more liquid [emerging market] currencies,” he said.