Sterling vulnerable as PM resigns

Sterling exchange rates posted short term gains but have since fallen back to 1.13 against the Euro and 1.2670 versus the US dollar as Prime Minister Theresa May confirmed in an emotional speech that she will step down on the 7th June.

Post her resignation the fight will begin to hold the post at number 10 with staunch Brexiteer Boris Johnson the bookies favourite to take the top job. Of course there is no guarantee Mr Johnson will be voted in by the Conservative party but it leaves sterling vulnerable to a number of potential outcomes.

On Friday, Foreign Secretary Jeremy Hunt became the latest MP to say that he would run for the party leadership, joining Mr Johnson, Esther McVey and Rory Stewart, who had already confirmed their intentions to run for the top job.

What could happen to the pound?

Mrs May has faced a backlash from her MPs against her latest Brexit plan, which included concessions aimed at attracting cross-party support. This failed and therefore it appeared her only option was to resign. The issue hear could be the length of time it may take to vote in the new PM with the hope being one can be in place by the end July, before the summer recess. This will then leave just three months for the new PM to negotiate an acceptable deal before the 31st October deadline – is this enough time?

Sterling to me is very vulnerable particularly should a hard line Brexiteer come into power. This could mean another series of negotiations with little guarantee the EU will even contemplate a re-negotiation. This therefore leaves a real chance of a ‘no deal’ Brexit and most likely a significant loss in value for the pound.

Avoiding adverse exchange rate movements

Current sterling exchange rates are precariously placed and vulnerable to some significant downside losses, particularly if we leave the European Union without a deal. 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.

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