With the dust beginning to settle since the historic vote last week, there are a number of key questions that remain which have the potential to move exchange rates.
With all the talk, debates, political fallouts and economic concerns, the Pound gathered momentum during yesterday’s trading day whilst the FTSE100 soared above 6300, staging its best recovery since the news last Friday.
And whilst we are bombarded with Brexit doom and gloom news, I’d like to take the opportunity to explain that GBPEUR exchange rates are still attractive despite the falls witnessed upon the results.
If we look back over the last 10 years, GBPEUR rates have averaged 1.25, in context, current rates of 1.21 are not that ill-favoured, especially when you consider the rates back in December of 2008 (1.02). We must remain optimistic amongst the chaos but equally cautious of the future timeline of events, which could see further vulnerability for the Pound.
David Cameron has passed the responsibility of triggering Article 50 to his successor, which polls suggest could be Boris Johnson or Theresa May. Like any other election, market volatility is likely to increase as we approach September.
There is then the question of when, or if, Article 50 will be invoked. The British Referendum is not legally binding and with the majority of Parliament in favour of a Remain, there are some that hold the view that the British public’s opinion will be ignored. I find this stance highly unlikely given the huge unrest this would cause within the UK, much of the damage of the Referendum has already been felt globally and key EU figures have made it clear that a vote to leave the EU should be final.
Once Article 50 is invoked the countdown to negotiations begin. The EU are not open to discussions with the UK until then, which leaves the level of uncertainty open. The triggering of Article 50 will likely cause Sterling weakness and any talks surrounding negotiations could see Sterling rise or fall.
EU officials have warned that the deal will not be in the UK’s favour which prompts further concerns as to how the market will react to proposals, although it’s unlikely that the UK will opt out of free trade agreements.
If the UK opted to trade under the WTO, prices would increase significantly in the UK as trade tariffs are imposed. It is also arguably in the EU’s interests to keep trade agreements intact given that the UK exports between 40-50% of its goods and services to the Bloc. But let’s be clear, with free trade comes free movement of people, unless the UK are able to negotiate immigration capping.
I continue to hold the view that the UK could become a member of the EEA, similarly to Norway, which could limit the impact of a Brexit. The EEA model would not be welcomed by a portion of the Brexit supporters due to its free movement of person’s policy, but would remove the red tape around fishing and agriculture policies.
The news that Scotland, Northern Ireland and Gibraltar want to maintain their EU status comes as no surprise given the heavy remain turnout, but this could have implications for England. Nicola Sturgeon of the SNP, is heavily in favour of keeping the status quo and will likely push Scotland to hold a second Referendum. Northern Ireland could follow suit leading to a breakup of the United Kingdom.
The above scenarios could put the Pound in deeper waters which is why I hold the view that current exchange rates are still attractive. I appreciate that this period of uncertainty will likely continue which is why I urge you to get in touch with our brokers if you have any concerns. Our 17 years of expertise has seen many major events come and go and we have always continue to provide our clients with highly competitive exchange rates through these volatile periods.
Dont hesitate to call us today on 01494 725 353, we will be more than happy to assist you with your questions.
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