How could a Brexit impact your currency exchange requirements?

Posted on 07/13/2016 ~ Categorized as Invest
How could a Brexit impact your currency exchange requirements?

The news on Friday may have come as a shock to you, and you may be wondering what will happen now. As an expat, you are left with a number of unanswered questions as to what will happen to your rights, exchange rates, taxes and healthcare. We covered this in our previous article and nothing is likely to change until article 50 is invoked and new negotiations have been finalised, which could be a number of a years from now.

In the meantime, if you are buying a property abroad, you may wish to take advantage of spikes in rates to get the best deal on your exchange.

Prior to the EU Referendum, GBPEUR rates were sitting at 1.30-31, due to market confidence in a Remain vote. However, at the time of writing, the GBPEUR rate is heading towards 1.19.

The implications on a €500,000 purchase for example, are noticeable when you take into consideration the exchange rates before. €500,000 would have cost you £381,679 prior to the results, now it would cost £420,168, almost £40,000 more expensive.

Exchange rates are likely to get worse before they get better

In the last week alone, a number of important questions have been raised over the UK’s exit strategy as well as who will be in charge of leading the withdrawal process. David Cameron’s decision to step down in October has only led to more questions, who will take his place? When will article 50 be triggered? This prolonged period of uncertainty will likely put pressure on the Pound until a clear picture of where the UK stands materialises. Before the UK arrives at their new destination, they may first face heavy storms.

Who will lead the Withdrawal process?

One of the frontrunners to replace David Cameron is Boris Johnson. The impact this could have on Sterling is yet to be seen but it’s worth mentioning that during his rally speech, the Pound dropped in value.

There has been controversy surrounding his intentions for running the Leave campaign, with some arguing that it was more for political gain. It also came to light after the vote that the Leave campaigns promise to save the NHS £350 million a week may have been a mistake, as Nigel Farage told an ITV presenter on the morning of the results.

Other alternatives are Michael Gove, Theresa May, although there is a possibility that the UK population may want a General election, which could see Labour take control. This raises the question, who would lead the Labour Party? This week alone 20 members of the Labour cabinet have left their post over Jeremy Corbyn’s handling of the Remain campaign, with some members calling for him to resign.

All this political turmoil and uncertainty will likely put strain on the Pound. It’s no secret that the majority of MPs were in support for a Remain vote and this is likely to distract from the focus of leading the exit plan.

A Brexit could cause further division within the UK and EU

Upon hearing the results on Friday, Nicola Sturgeon – the leader of the Scottish National Party, announced that she will do everything she can to keep Scotland in the EU. Scotland and Northern Ireland voted heavily for the UK to remain in the EU, and there is a possibility that a second Scottish Referendum to leave the UK may be on the horizon.

Then of course, there is the potential domino effect of the UK’s vote. There are a number of right wing movements within France, Netherlands, Sweden, Italy and Austria that want to put a case forward for leaving the EU, which could signal the end of the EU as we currently know it.

What deal will the UK get?

What deal the UK get will also impact Sterling and the British economy. It is very difficult to speculate as no country has ever eft the EU. However, it’s likely that if the UK wish to continue trading with the EU with little barriers, they would still have to accept free movement of people and a number of other EU laws.

It seems unlikely that the UK will get a better deal than they currently have, and the EU may wish to set an example for other EU members that may be considering their own referendum on EU membership.

Will the Pound remain in the lower 1.20’s?

As it stands, GBPEUR exchange rates are in the 1.20’s, but if we cast our eyes back to of the recession, the GBPEUR rate dropped as low as 1.02. Given that the 10-year average is 1.25, currency exchange rates are still attractive given the potential for further losses.

I am of the opinion that rates could fall to between 1.10-1.15 in the near future with little hope of them recovering until new agreements are ratified and the British economy is showing signs of improvement.

On the other hand, those looking to buy Sterling with Euros can enjoy rates not seen in over 2 years. If you are thinking about repatriating to the UK due to concerns over the future, or are visiting family and friends, buying Sterling has become noticeably cheaper. For those buying a property in the EU, purchasing Euros sooner rather than later could save you money given the amount of uncertainty ahead.

Provided by currencies.co.uk, you can view live exchange rates at http://www.currencies.co.uk/live-exchangerates/

 


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