Exchange Rates and Their Impact

Written by on September 20, 2017 in Currency Information, Financial

Many of you reading this will be no stranger to the vagaries and volatility associated with the currency markets. It is a major consideration in any expatriates’ life unless they have severed all ties with the UK and have fully committed to a Francophile existence and at no time in recent history has it been so tumultuous.

The combined factors of political upheaval in the form of Brexit, despite varied opinions, have turned 50 years of economic and foreign policy on its head overnight. Mixed with economic recovery across Europe and UK and we have ourselves the perfect storm in currency terms. Add in the lack of internal filter between the current US President and his Twitter feed and the markets can become more than treacherous to try and navigate.

James Bennett of Aston Currency Management shares his views on what we could potentially see happening with GBP/Euro for the rest of 2017:

We’ve had recent indications from Mark Carney at the Bank of England that an interest rate rise is imminent, causing sterling to throw off its recent slumber and have a noteworthy rally on the Euro. This has caught most analysts by surprise and provided a brief and welcome window to those with Sterling based income. However, can it last?

With German elections imminent and Brexit still very much an internal argument in the UK, it would appear questionable at best. This fact set against the background of a Europe finding its economic feet and rallying behind the political movement to form an ever-closer bond as a reaction to Brexit, galvanizes somewhat ironically the spirit of understanding that we sought and failed to find within the EU. We don’t see a rosy outlook for GBP in this context.

How will this impact your current spending and investment patterns? This is a question that we would advocate you to consider sooner rather than later as inaction is very much a gamble that few can afford. You will see from the simple table below how much £10,000 would have bought you before Brexit, as well as today, and if we reach parity as we expect by the end of the year:

GBP/EUR rate GBP Amount EUR Amount
Pre Brexit 1.31 £10,000 €13,100
Today 1.125 £10,000 €11,250
Parity 1 £10,000 €10,000

If you are reliant on a Sterling based income source to support yourself then it is time to face the grim reality that in little over a year your relative income has dropped by a huge margin and can fall further.

You are then faced with the choice of adjusting your lifestyle accordingly or taking some of the risk off the table now by forward buying a portion of the currency that you require, that is to say locking in at today’s rate for use at a future date.

You don’t have to do this for all of your currency flow but taking a portion of risk off the table may well insulate you against the worst of a market adjustment. A decent currency broker will be able to advise you on this and deliver further value on your spot transactions, when you are losing money to the markets it is more important than ever to seek to get the most bang for your buck and this is rarely delivered by banks.

Sponsored by Aston Currency Management

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