This Pound Sterling currency update discusses the latest EU Referendum news and looks at other factors that could affect GBP exchange rates this week.
Fears of a Brexit took hold of the currency market during yesterday’s trading, with Thomson Reuters’ volatility index, a measure of investor uncertainty, hitting record highs in excess of the volatility caused by the global financial crisis in 2008.
Fears of a Brexit were re-ignited yesterday, with online gambling firm Betfair estimating a 34% chance of a leave vote, whilst shortening the odds for Britain to leave the EU.
As a result of this, the Pound hit a two-month low against the Euro, with the GBP/EUR rate falling by over 1% in the space of just 24 hours. In my opinion this is just the start of things to come, and I believe it is highly likely that, similarly to the run up to the Scottish referendum, we will see the Pound fall further still. One of our most popular contract types in such times of uncertainty and volatility is the forward contract. With a small deposit of 15% of the total sum you are looking to purchase, a rate can be locked in today for up to 18 months in advance, regardless of swings in the Pound’s value.
I believe that we could see GBP/EUR rates hit as low as 1.22 in the run up to next Thursday’s vote as investors begin to move their money out of the Pound and in to safer havens such as the USD and JPY, but economists at Barings Asset Management believe that the Pound could fall by 20% if the UK do leave the EU. That would leave the GBP/EUR exchange rate at almost 1/1 – so if you are buying a property overseas and are worried about a Brexit making your purchase more expensive – a forward contract before June 23rd may turn out to be a very wise move! To keep track of foreign exchange rates visit our live interbank currency rates page.
As far as economic data is concerned this week, the focus will be very much centred on inflation figures this morning and the Bank of England’s Monetary Policy meeting minutes and interest rate decision on Thursday.
Firstly, it will be interesting to see if consumer spending dropped in May with the EU Referendum beginning to have an impact on spending decisions.
If there is a drop in inflation figures it could spark more trouble for the value of the Pound. Investors will likely be keeping an even closer eye on the Bank of England’s interest rate decision and minutes on Thursday at 11am.
It seems highly unlikely that there will be any change in the voting, but there have been rumblings that we could be in store for a rate cut in the near future, with the impact that the upcoming referendum has had on the economy. With this in mind, any hints towards a rate cut or dovish tones from the minutes could cement the Pound’s downward spiral even further, so it is important that you keep in touch with your account manager here who can keep you informed of all the latest shifts in the market.
For news on the Brexit vote or information about data releases that could affect your money transfers you can contact our currency brokers on 0044 1494 725353 or email me directly at email@example.com.
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