2019 has been a volatile year for the Pound, with price movements largely being driven by Brexit related events. So far this year we have seen GBP/EUR hit lows of €1.10, and highs of €1.1750 (the highest in 2 years). In real terms, this means the cost of purchasing a €350,000.00 property overseas has differed in cost by more than £20,000.00. This illustrates the importance of the foreign exchange markets when buying property abroad or making large transfers overseas. The below graph shows how GBP/EUR rates have fared so far this year:
In today’s post we’ll look at what has been causing the volatility, what could affect Sterling throughout 2019, and ways in which you can limit your exposure to ensure you don’t get caught out by sudden movements in the rate.
What has been causing volatility for the Pound?
By and large it has been political events driving Sterling. In January, it was uncertain whether the UK would leave the EU with a deal, and this kept significant downward pressure on the Pound, hitting 18-month lows of €1.10. As the year progressed, it looked increasingly likely that a deal would be agreed, and this helped drive up the value of Sterling by more than 5% in the space of just a few weeks. The final hurdle was Parliament voting the deal through, however it has been rejected by MPs multiple times. With no agreement in place, the UK edged closer and closer to crashing out of the EU without a deal, and GBP exchange rates dropped. With time running out, the EU agreed to a 6-month delay, giving time to solve the impasse.
This delay has removed any immediate risks of a no-deal Brexit that would have hit the pound hard. It also reduced the volatility the Pound had been experiencing, with GBP/EUR stabilised at around the €1.15 to €1.16 level. While extending Brexit has avoided no deal, it has also extended the uncertainty, and this will limit any further gains for Sterling. It’s likely that the Pound won’t move much while the markets await a breakthrough in Britain’s EU divorce process. Currently it doesn’t look like there is any progress being made in talks between the Labour opposition party and the ruling Conservatives to resolve the parliamentary deadlock.
Which way could rates move in the coming months?
There is much that could happen between now and October. A deal could be agreed and if the withdrawal agreement is passed, then we think the Pound will rise in value. However, while no deal is agreed Sterling will probably do very little. There are various other scenarios that could play out and have a significant impact on the British Currency, from a new ‘Brexiteer’ Prime Minister, a General Election, a new referendum, and leaving with No Deal, which remains the default option should an agreement not be forthcoming. Many of these options could very easily send the Pound back down to 2-year lows of €1.10 or below.
Avoiding adverse exchange rate movements
Currently, exchange rates are stable, and GBP/EUR rates are still very close to the best we have seen in 2 years. With this in mind, anyone purchasing property in the Eurozone or elsewhere in the coming months, should take steps to ensure that a sudden movement in the value of the Pound doesn’t increase the cost of your property unnecessarily.
A popular option is to freeze the rate using a Forward Contract. This is usually done when you have paid your deposit, and guarantees the price you will be paying in Pounds. A 10% deposit is required, and your rate is fixed for up to 2 years. Those less risk averse that want to take the chance of rates improving should Brexit be resolved, can use Stop Loss and Limit Orders. These instruct your broker to purchase your currency if it reaches a particular level, or starts to drop. This allows you to take advantage of any gains while not leaving yourself exposed to a sudden drop in the rate. These types of tools, along with exchange rates that are significantly better than your bank may offer, are why many people choose to take advantage of the services we can offer. On large transfers the saving usually run into thousands of Pounds.
To find out more about how we can help you save money on currency transfers, get in touch today.