Hope is a belief that an outcome will occur, and this hope, desire and belief foster confidence, however this is not a reliable tool when dealing with the Foreign Exchange market; by far the largest market in the world. Over confidence that the market will move your way could cost you thousands of Pounds in the coming weeks. For clients buying properties overseas, or businesses dealing with foreign currencies, the implications of what’s happening at the moment are huge. With current volatility heightened due to the impending EU referendum, now is the time to take stock of your currency requirements. Yesterday was relatively flat in the market, so in today’s post we’ll look at ways you still hope for the best, but plan sensibly for the worst.
Need to buy Euros?
Those that need to buy Euros will no doubt be hoping that onFriday morning, the UK will have voted to remain within the EU. If so, it’s likely that Sterling will strengthen. However there is every possibility that we will vote to leave the EU, and this could cause exchange rates to fall.
Those that don’t want to take any risk, can lock in the rate now for up to 2 years, using a Forward contract. You only need to lodge 10% of the total to be converted, and gives you a set rate allowing you to budget, removing your exposure to the market. Very useful for those buying overseas, or business that pay suppliers in Euros and want a fixed cost. Alternatively, you can place a ‘Stop Loss’ order to execute your trade should the rate drop below a pre-agreed level. This gives you a worst case scenario should the rate plummet, but allow you to take advantage if the market goes up.
Euros to sell? Considerations….
Many clients that have Euros to convert to Pounds are taking advantage of the rate now, as if we vote to ‘Remain’ then it’s likely the Pound will strengthen. Some clients however are taking a gamble on a ‘Brexit’ hoping the Pound may weaken further. This may not happen however, as with any trade you need to consider both sides.
While the perceived wisdom is that Sterling will tumble should we leave, the Euro is also likely to weaken significantly. A ‘Brexit’ would magnify the political weakness in the EU, and raise the question of other EU members holding their own referendums. This would mean the Euro would not be an attractive option for investors, and could well weaken along with the Pound, meaning the GBP/EUR may not fall as some are suggesting, or not as much. A stop loss order is a good strategy in this scenario.
What do you think?
Opinions make the market, and I’m always keen to hear clients’ thoughts on the current issues affecting the currency markets. Will the UK vote to leave the EU? What impact would this have for your currency requirements? What consideration have you given to protecting yourself against the potential volatility? What would a ‘Brexit’ mean for the expat community abroad? What would it mean to you, and your requirements over the next 12 months?
Feel free to get in touch for a chat about the current events that are causing the exchange rate fluctuations. I would be interested in hearing your thoughts, and to answer any questions you may have about the exchange rates we offer, how we can help you with your currency transfers, and the ways we remove uncertainty for our clients exposed to the currency markets.