Theresa May shocked the markets on the 18th April when she announced her intentions to hold a snap election on June 8th. The news was welcomed by markets and the Pound made significant gains against its Euro and US Dollar counterpart, as well as most commodity currencies such as the Australian and New Zealand Dollar.
At the time of writing, the Pound is at multi-month highs as the Prime Minister hopes to strengthen her hand from June’s snap election. Her decision is one of tactics, with Labour trailing well behind in the polls she knows she stands in a position of strength. A win for May is a win for her vision of Brexit.
Why is the Pound going up following Theresa May’s General Election announcement?
There is one argument that by May calling a snap election, her chances of winning are strong and that further resistance to her Brexit plan would be muted. This would allow May to steer the UK through the Brexit process in which it would create further certainty. The issue with this argument is that by allowing Government more control over the Brexit process, there’s less room for Parliamentary scrutiny which adds to the growing concern of a hard Brexit.
Another argument is that a majority of the 48% who voted against Brexit will back the Liberal Democrats, who have insisted the Referendum should have included important details of what Brexit should entail. The Lib Dems are one of the few major parties to use this opportunity to prevent or at least limit the impact of Brexit, and a soft Brexit or no Brexit at all will be welcomed further by Sterling investors.
Will the Pound continue to go up and should I transfer currency now?
The direction of the Pound will continue to hinge upon many factors, and with this in mind those with a foreign currency requirement should consider the different outcomes to this snap election.
First and foremost, Sterling will remain sensitive to economic data with signs of downturn seen as a response to the Brexit vote. This will continue to weigh heavily on the Pound as it has done since the results last June.
The position of EU27 and sentiment around formal Brexit negotiations will also play a big part in investor confidence as they look for clues as to what the final Brexit puzzle will look like.
It’s also worth noting that whilst not entirely related to Brexit, the French elections will continue to dominate the spotlight upon the Eurozone. Fears for a Le Pen/Melanchon run off in the second round could prove fatal for the EU and its single currency. Having said this, there’s every likelihood that Macron could win the French elections and Theresa May could win June’s snap election whilst maintaining a hard stance towards Brexit. In my view this would strengthen the Euro’s position against the Pound once more.
As such, there are arguments for Sterling strength and weakness, but with GBP/EUR now at its highest level in 2017 and GBP/USD closing in on a seven-month high, making a currency transfer sooner rather than later seems appropriate. You may have doubts about whether now is a good time to buy or sell currency, but did you know there are contract options available to you that will remove much of the risk associated with these major events?
Contract options to limit your exposure to the General elections in June
Limit and Stop loss contracts
If you have a large currency transfer to perform, and are hoping for a better rate to maximise your return there are two specific contract options that you can consider. A limit order and stop loss contract can be used simultaneously to set upper and lower ranges you’re willing to accept.
For example, if you are looking to buy €120,000 setting a limit order of 1.20 (GBP/EUR) would allow us to purchase your currency automatically once the desired rate of exchange is met. If you couple this with a stop loss order of 1.18 for example (the lowest rate you’re willing to accept), you are able to cover your tracks in the event of Sterling weakness.
By doing this, you are not only limiting your exposure to a very volatile market, but you are giving yourself the opportunity to make the most of any potential spikes in the market before its too late.
Perhaps you don’t have all of the available funds but don’t want to miss out on the Pound’s recent rally. A forward contract option is the perfect solution for those who want to lock in a current rate of exchange with the intention of buying large amounts of currency in the short term. This contract option is a good choice for those with limited funds, and for a small deposit you can lock in a rate of exchange for a period of up to 18 months. That way, you know exactly how much bang you will receive for your buck, providing you absolute peace of mind throughout this period of political and economic uncertainty.
If you would like to learn more about contract options, or have a requirement and wish to speak to an expert, please give us a call on 01494 725 353 or register your interest free here and one of our brokers will be in touch.