Tuesday, 9 February 2016

Pound plummets on 'Brexit' fears

Things seem to be going from bad to worse for the Pound I'm afraid, with Sterling having a very poor start to the week. GBP/EUR rates dropped into the €1.28's during trading yesterday. Today we saw a slight recovery to €1.29, however throughout the day the downward trend has continued.

At the time of writing, GBP/EUR is 1.2740 and it's all to do with the UK EU referendum, or 'Brexit'. Here is how GBP/EUR rates have fared in the last 24 hours:


Sterling/Euro rates at a 13 month low


It was only a few months ago that we were enjoying  GBPEUR rates above €1.40, which were around the best in over 8 years. Today however, the currency pair sits at a 13 month low, and there is a real risk the downward trend will continue. Last week, the rates dropped below the €1.30 level after the Bank of England signalled an interest rate rise is off the cards for 1 to 2 years.

This week, focus has turned to the risk of the UK voting to leave the EU. It seems like the Pound is starting to be sold off by major banks. Last week Goldman Sachs warned that a Brexit could cause the Pound to drop by as much as 10% to 15%. This week, we have other major banks dumping the Pound, as the likelihood of the UK leaving Europe seems to be increasing. The latest polls show that 45% would vote to leave, with 36% wanting to remain, with the remainder unsure or not voting.

If you cast your mind back to the Scottish independence vote, or the General Election last year, you will remember that Sterling lost lots of ground in the run up to the vote due to the uncertainty created. The EU vote in my opinion is significantly more important, and the effect leaving the EU may have is completely unknown. Therefore, as it looks more and more uncertain which way the vote will go, the Pound could keep dropping and dropping in value.

The Euro is gaining. That's the cause of this continuing fall in the rate we've seen today. As global concerns spook investors, there are safe haven flows into the single currency, that is strengthening the Euro and making it even more expensive to buy, compounding the effect and pushing GBP/EUR lower and lower.

Will the Pound/Euro rate go back up?


Many clients I speak to are holding out to see if rates may recover, still remembering that rates were recently at €1.40. However, bear in mind that the current levels of around €1.30 may now be a distant memory quite soon. It's impossible to predict which direction exchange rate may go of course, but there is a real risk the Pound will suffer and continue to drop in the coming months due to the risk of a Brexit, so if you need to convert currency in the next 6 months, you need to start making a plan now.  If Goldman Sachs predictions are correct, then we could see GBP/EUR as low as €1.10 to €1.15!

Protect yourself against exchange rate movements


If you are buying property abroad, or are a business dealing in the Eurozone, then the current situation cannot be ignored. There are various ways to protect against exchange rates moving against you, but you have to act now.

I can offer exchange rates up to 5% better than banks or other currency broker's offer, and have a wide range of contract types available such as Stop Loss orders, Forward Contracts, and Limit Orders that can property you against adverse exchange rate movements and enable you to budget properly when dealing in foreign currencies. Click below to find out more about how I can help you.

Click here for a free consultation, and get a quote today