The British Pound Is Starting to Resemble Emerging-Market Currencies 

(Bloomberg) -- The turbulence in the British pound is increasingly resembling gyrations typically seen in emerging markets.

While the U.K. currency is heading for its biggest monthly slump since October 2016 amid growing chances of a no-deal Brexit, its 90-day correlation with a gauge of developing-nation currencies has risen to the most in almost three years. Given the U.S. dollar’s continued strength and the shared vulnerability to political risks of the U.K. and developing nations, this relationship may get more attention in the weeks to come.

And it’s getting worse: the pound now trades at a record low relative to emerging markets. It’s underperforming the MSCI EM currency gauge for a third successive month as Prime Minister Boris Johnson signals determination to take the U.K. out of the European Union on Oct. 31, with or without a negotiated settlement over their trade and future economic cooperation.

The potential for disruption to business and capital flows has sparked a 2.7% sell-off in the pound in the four days through Tuesday. The rapid losses have sent sterling-dollar volatility to levels higher than those of emerging-market currencies such as the Mexican and Colombian pesos and Brazil’s real.

Pound Weakens as Volatility Climbs Above EM Currencies: Chart

For those who doggedly see the positive side of everything, however, the pound’s weakening may put Britain at a competitive advantage with emerging markets. While the European Union accounts for 49% of the U.K.’s exports, the developing world buys a little over 22%.

To contact the reporter on this story: Srinivasan Sivabalan in London at ssivabalan@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Robert Brand, John Viljoen

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