Cedi firms up against Pound after days of Brexit volatility
The cedi has begun firming up against the British Pound after experiencing some level of depreciation following the UK’s exit from the EU.
The cedi last Thursday saw some level of depreciation against the pound on both the interbank foreign exchange market as well as in forex bureaus across the country.
The move saw the cedi depreciating against the pound by over one percent on the interbank exchange market on Friday while losing about 8 pesewas across forex bureaus in the country.
But in a rather interesting twist of events the cedi has begun recovering from the decline and making some significant gains.
The pound on the interbank exchange market is now at 5 cedis 18 pesewas (selling) after hitting 5 cedis 79 pesewas (selling) while at forex bureaus it hit 5 cedis 88 pesewas (selling) and is now at 5 cedis 40 pesewas (selling) as at Monday June 27, 2016.
Economist Dr. Ebo Turckson explains to Citi Business News the cedi’s previous poor performance against the pound could be blamed on currency speculators.
“What we currently see on the forex market I understand and do suspect is that the currency speculators and their activities are causing it. Because the pound is falling, they are rushing to get some pounds so that when things stabilize and the currency begins to rise then they go in for it and then get out of it to make some profits. If that is what is happening and the forex bureau is operated like what you expect, the market would respond that way causing the cedi to depreciate,” he stated.
Dr. Turckson added that the current show of strength by the cedi against the pound was expected as the pound has been struggling since the exit of UK from the EU.
“The effect of the announcement has made the British pound weaker against other currencies and I think that is also playing on the cedi. So the cedi has gained not because of anything but because the decision has made the pound weaker so I will not say I am surprised by the interbank rate because the pound has been falling ever since the announcement was made.”
Ghana’s cedi which had been trading at 5 cedis 72 pesewas to a pound (buying) and 5 cedis 73 pesewas (selling) since last week Monday changed gear on Thursday June 22 and begun trading at 5cedis 78 pesewas (buying) and 5 79 pesewas (selling) on the interbank foreign exchange market where banks trade among themselves.
Currency analysts believe the marginal decline of the cedi against the pound was due to the exit though earlier other currency analysts had told Citi Business News the cedi was not likely to feel any impact against the British pound with any decision by the UK to stay or exit the EU.
Currency analyst, Samuel Ampah argued that the volume of trade between the UK and Ghana as well as the limited financial aid granted to the latter will not result in a fast depreciation of the cedi.
“I can clearly state that there will not be any impact. Ghana is not currently benefiting directly from Britain in terms of aid. When Ghana was regarded as a poor or developing country, you could have Britain giving out some aid. Now Ghana is not directly benefiting so much in terms of aid from Britain that is how come you can guard the British pound being used to support our economy. But because we are not earning so much from Britain, we might not necessarily feel it.”
Elsewhere – across the globe however, the British pound plummeted by 10 percent reaching levels not seen since 1985 well below the value at the worst of the 2008 financial crisis the euro dropped nearly 4 percent while shares in London were instantly down by nearly 16 percent.
The BBC reported that the London stock market had plunged more than 8% in the wake of the UK’s vote to leave the EU.
In the opening minutes of trade, the FTSE 100 index fell more than 500 points before regaining some ground.
Banks were especially hard hit, with Barclays and RBS falling about 30%.
Earlier, the value of the pound fell dramatically as the referendum outcome emerged. At one stage, it hit $1.3236, a fall of more than 10% and a low not seen since 1985.
The Bank of England said it was “monitoring developments closely” and would take “all necessary steps” to support monetary stability.
Impact on GSE
As expected there was no impact of the news on the Ghana Stock Exchange (GSE) which usually reacts slowly to external developments.
British bank Stanchart’s (SCB) share on the GSE recorded no price change and remained at 14 cedis 20 pesewas.