Nothing derails markets in foreign exchange trading quite so dramatically as a political surprise. Elections, referendums, foreign wars—these are not just news stories. They determine mood, change capital, and cause genuine movement in markets. And no recent political event did so with such dramatic insistence as Brexit.
When the UK voted to leave the EU in 2016, the response was not political—it was financial. The Pound crashed like a rock, and then were years of second-guessing and volatility. Brexit was a living case study in political risk’s impact on markets, and why traders can’t help but take notice.
The Forex Market: A Sensitive Barometer of Political Risk
At its most basic level, currency trading is a vote of confidence. Confidence in a country’s economy, its rulers, its prospects. And when that confidence wavers, currencies notice—immediately.
That’s exactly what happened with Brexit. The UK didn’t overnight become weaker. But markets dislike uncertainty, and Brexit did provide plenty of it. Would the UK lose access to European markets? Would large firms flee London? Would the financial services evaporate? Investors pulled back with no clear answers — and the Pound suffered the brunt of that withdrawal.
How the Pound Responded to Brexit: A Timeline
To have a sense of scale of the impact, here’s how the GBP/USD currency pair responded at some of the most significant Brexit milestones:
| Date | Event | GBP/USD Reaction |
| 23 June 2016 | Brexit Referendum Day | Dropped from 1.50 to 1.33 overnight |
| October 2016 | Hard Brexit rhetoric escalates | Fell to 1.21 |
| March 2017 | Article 50 Triggered | Volatility spikes, minor recovery |
| December 2019 | Boris Johnson wins UK election | Rallied to 1.34 |
| January 2020 | Official departure from EU | Stabilised near 1.30 |
The referendum precipitated one of the most dramatic overnight changes in forex history. And while the Pound did recover ground later, it never regained its pre-vote position.
Why the Pound Got Such a Pasting
So what did crash the Pound so rapidly and so hard? Three key reasons:
- Uncertainty held sway. Markets didn’t have a clue what Brexit would mean—on trade, immigration, investment, or policy. That kind of uncertainty spooks investors. Spooked investors pull out capital, and currencies fall.
- Perception soured. Even before policy changes could actually take hold, the broad perception was that Brexit would hurt the UK’s long-term prospects. And in forex, perception hurts harder than reality.
- The Bank of England stepped in. To shore up the economy, the BoE cut interest rates and injected stimulus. Sensible moves at home—but they made the Pound less attractive to the rest of the world.
What Traders Learned from Brexit
Brexit was not a political story—it was a spontaneous lesson in how markets react to shock. Here’s what traders can learn from it:
1. Don’t put too much bet on polls
Entering the referendum, everyone assumed the UK would remain in the EU. Markets assumed that assumption—and when the outcome suggested otherwise, the reaction was brutal. Political forecasts are incorrect. Hedge accordingly.
2. Volatility is both a risk and an opportunity
The chaos after the vote generated monstrous swings—unsustainable short-term trading, but dangerous with no strategy to implement. Those who stayed calm and had a strategy performed better than those scrambling to catch up.
3. Central banks are in the eye of the storm
While politics ignites the spark, central bank policy generally dictates how much it spreads. The Bank of England’s actions since Brexit—cuts in rates, forward guidance, asset buying—have had a huge impact on the direction of the Pound. Always consider both the political event and the monetary response.
Brexit Was Huge — But Far from the Only Shock
While Brexit is the most prominent, it’s not the only one that has moved markets. Here are some other recent examples where politics rocked the forex market:
- US Presidential Elections (2016 & 2020): Both of the elections saw active Dollar fluctuations, as investors wanted to exchange new governments with essentially distinct agendas.
- Russia-Ukraine Conflict (2022): The Ruble collapsed, the Euro came under severe pressure, and commodity-correlated currencies surged as oil and gas prices soared.
- South African Cabinet Reshuffles: Serial changes in leadership have made the Rand very vulnerable to local politics. When investor confidence in government wavers, the ZAR does the same.
How Traders Can Prepare for Future Political Events
You can’t predict politics—but you can be ready for how they might influence your trades. Here’s how:
✅ Stay up to date
Use reliable news sources. Watch economic calendars. Watch for important announcements. Being ahead of the rest of the market allows you to act first.
✅ React to market action, not headlines
Markets are prone to “price in” what they expect. The real action is what they did not expect. Be ready to move when the story changes.
✅ Don’t overexpose
Avoid betting too much money on one trade during politically tense times. Hedge your bets and risk manage using stop-losses or hedging instruments.
✅ Balance fundamentals and technicals.
Political developments drive the agenda—but technicals help you spot levels of importance and enter and exit positions at the right times.
Last Thoughts: Prepared, Not Predictive
Brexit was a reminder that political risk is not some intangible concept. It’s real, in the moment, and market-stimulating. And while the Pound did stabilize eventually, the lessons for traders remain.
Today—when political surprises seem to come faster and hit harder—being ready is essential. You don’t need to predict the outcome of every election or referendum. But you do need to expect how markets might respond.
Because at the end of the day, the surviving traders aren’t necessarily the ones who get every single call right. They’re the ones who can manage risk, stay current, and adapt quickly when the oddball happens.
FAQ: Political Events and Currency Trading
❓ Why did Brexit affect the Pound more than the Euro?
While both currencies were affected, the Pound was more directly impacted due to the UK’s exit from the EU. The Eurozone remained intact, and uncertainty concentrated around Britain’s economic outlook.
❓ Can political events really change long-term trends in forex?
Yes. Major shifts like Brexit can alter trade balances, investment flows, and monetary policies—leading to long-term trends in currency valuation.
❓ How should a beginner trader react to major political news?
Avoid knee-jerk reactions. Study historical patterns, use protective instruments like stop-losses, and wait for clear market direction before making moves.
❓ Are elections as impactful as referendums like Brexit?
Elections can be equally impactful—especially when they indicate major shifts in policy or economic direction. For example, unexpected outcomes like Donald Trump’s 2016 win caused major intraday volatility in USD pairs.
