On Brexit: What Exactly Is a Dead Cat Bounce?

On Brexit: What Exactly Is a Dead Cat Bounce?

As you almost certainly already know because you are a person in the world, the United Kingdom voted last night to leave the European Union. And while the exit won’t follow immediately—there’s a complex legal process to be undertaken—markets do respond immediately.

After a devastating period which saw the pound’s exchange rate fall to lows not seen since the 1980s, things have started to look a bit brighter. But don’t expect the rebound to last. That period of modest recovery has a gruesome name in the finance world: Dead Cat Bounce.

If you’ve been watching a television or reading a newspaper or listening to the radio, you’ve probably heard the words (but perhaps not heard them explained). Some examples:

This colorful term of hazy origin is used to distinguish a brief recovery from an actual rally.

“Dead cat bounce refers to  people claiming success for a non-event–or even for an event that should disprove the story they’re telling,” says Nick Buffie, a research assistant at the Center for Economic and Policy Research. “The idea is that if you drop a live cat from a certain height, it will land on its feet—as cats always do—and jump back up. By contrast, if you dropped a dead cat, its body would bounce slightly after hitting the ground, but then it would just fall back to the ground again.”
Translation: Despite the bounce, expect the pound to continue to fall.

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Associate Editor

Amanda joined Washingtonian in January 2016 after moving to DC from LA, where she wrote about surfing for The Inertia and freelanced for Honolulu Magazine. She lives in Shaw.