What does ‘no deal’ actually mean?
For people that are converting Sterling into a foreign currency, the ongoing Brexit saga continues to be the main talking point. In recent weeks a no deal departure from the EU has become evident as a high possibility. Governor of the Bank of England Mark Carney stated “the possibility of a no-deal is uncomfortably high at this point” and Trade Secretary Liam Fox went one step further and stated there is a “60-40” chance of the UK leaving the EU without a deal. Following the statements, Sterling lost value against all of the major currencies and GBPEUR exchange rates fell to a 11 month low.
The reason Sterling fell dramatically is that investors are fearful that a no deal would mean the UK would fall under the World Trade Organisation rules. This ultimately would mean the UK would have to pay tariffs to Europe as they would no longer be part of a free trade area or customs union. Therefore the uncertainty is forcing investors to hold off from investing in the UK at present. This is why the City of London are continuously telling the Government that certainty is needed.
What does this mean for clients sending foreign currency abroad?
It’s impossible to predict the outcome of Brexit, therefore it’s important to manage your exposure to the market if you are purchasing a foreign currency at present. For example, most clients that are purchasing a property in Europe at the moment are purchasing their deposit and full balance at the same time. If the client has the full amount of Sterling available, they are using a spot contract which means clients buy the full amount of Euros now, send the deposit to the lawyer, Solicitor or Notaire and then leave the full balance in our client account until completion. Furthermore, clients that don’t have all of their Sterling available are using a forward contract. This allows you to secure the rate now, but pay later.
Did you know, since the start of the summer GBPEUR exchange rates have dropped 4 cents? To put this into monetary terms a €200,000 purchase is now £6,150 more expensive. If it’s the case that commentary from Brexit negotiations continues to be negative in the upcoming months, you would expect to see GBPEUR fall further and this is the reason I believe buying Euros upfront is your best and most sensible option at present.
For people that are selling Euros to buy Sterling, my suggestion would be to register your interest with us and we will keep you updated with regular information. Together we can set a target rate for you and if the market spikes further in your favour we will give you a call and offer you the price you asked for. You can get in touch with me directly using [email protected].
To finish on a positive note, yesterday UK Unemployment numbers dropped to 4.0% yesterday which is the lowest level since the 1970s. Off the back of the news the Pound made a small recovery against the euro yesterday.
The post What does ‘no deal’ actually mean? appeared first on Pound Sterling Forecast.
Source: https://www.poundsterlingforecast.com/2018/08/what-does-no-deal-actually-mean/
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