Monday, 22 February 2016

How will the EU referendum affect exchange rates?

The EU referendum has now been announced, and this is likely to have a huge impact on Sterling exchange rates between now and June. In today's post, I'll outline how it could affect the Pound, ways you can fix a rate now even if you don't have all your funds available, and also run over the scheduled data releases that could affect exchange rates this week.

UK Referendum announced


As I'm sure you all know by now, the UK referendum on EU membership has been announced for the 23rd of June. This is going to present serious uncertainties that will be reflected in Sterling exchange rates over the next few months.

Already this morning, the Pound has suffered it's biggest drop in more than a year, over fears and uncertainty over which way the vote will go.

It's this uncertainty that I think will send the Pound lower in the coming months. It doesn't matter whether you or I think staying in the EU is a good thing or a bad thing, all that matters is investor sentiment. Because it's such an unknown, the Pound is not going to be an attractive option for investors, and therefore I would expect Sterling to suffer large drops in the coming months.

The Scottish Independence vote and the UK general election last year, both also created uncertainty due to the result being impossible to predict. The Pound lost significant value in the run up to both votes, as opinion poll were released daily. This time, it's even more important as nobody knows what effect leaving would have on the UK economy. Therefore, I think the main thing that will affect the Pound will be all the opinion polls indicating which way it will go. Ultimately Sterling is likely to suffer for several months until the vote is held.

How to protect against currency movements


When converting a large sum of money to another currency, it's very important to know your options and not leave yourself exposed to what is likely to be a very volatile market. There are ways to protect yourself from the exchange rate plummeting however, such as Stop Loss orders and Forward contracts. 

If you need to convert funds however, you should get in touch to discuss the ways I can help you achieve the best possible exchange rate, and obtain a quote to compare with your bank or existing broker. I usually provide rates between 0.5% and 3% better than available elsewhere, so the savings can be considerable when converting a large sum. Of more importance is having some protection in place against the likelihood of exchange rates plummeting due to referendum uncertainty.

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This weeks economic data releases


Below is a brief outline of the main economic data releases for the week ahead. For a detailed breakdown of what could affect the exchange rate you're looking at, send me a free enquiry. 

Monday 22nd February 2016 - This morning we had lower than expected inflation data from Europe, however GBP/EUR still fell as markets react to the EU referendum. There's not much of else of interest being released today, other than Manufacturing data from the USA later this afternoon.

Tuesday 23rd February - Nothing of note from the UK. German releases it's latest GDP figures and assessments of their economy which could affect the Euro. The USA has Consumer confidence figures at 15:00pm that could move GBP/USD rates.

Wednesday 24th February - The only data of note today is from the USA - inflation and home sales figures, both of which could affect Pound/USD rates.

Thursday 25th February - The first scheduled UK release of note are the latest GDP figures. I expect this to show growth of 0.5%, any lower would send the Pound lower. The EU releases it's latest inflation figures, and over in the States the latest Jobless claims may affect cable.

Friday 26th February -  We end the week with UK consumer confidence and German inflation and consumer prices that could impact GBP/EUR rates. Over in the USA we have GPD figures along with Personal Consumption and Expenditure.

Are you looking for the best exchange rates?


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