The impact of Brexit on the pound

The impact of Brexit on the pound

The impact of Brexit on the pound

  • Posted by : Moneycorp
The impact of Brexit on the pound

Currencies fluctuate in value on the foreign exchange market due to a variety of factors. Often currencies are more volatile during periods of uncertainty and as an unprecedented situation, Brexit has brought with it considerable uncertainty. Immediately after the result of the EU referendum, the pound dropped against a basket of other currencies. The pound has made gains since the initial result, but Brexit continued to cast a shadow. 

What has happened to the value of the pound this year?
Although sterling started 2018 as one of the top-performing currencies, ongoing Brexit turbulence has seen it yo-yo over the last year. In March, as the original deadline approached, the pound rose to fresh highs on hopes that there would be an end to the Brexit uncertainty, but the bill was voted down. The pound rose on the news that MPs rejected the ‘no deal’ scenario but the optimism was short-lived and sterling fell back the next morning as the market acknowledged that the vote was not legally binding. The deadline was extended to 31st October and there was further turbulence after Theresa May resigned and a leadership contest saw Boris Johnson take residence at Number Ten. The recent discussions developments following Boris Johnson’s amended departure deal saw sterling spike against the euro and the US dollar in the run up to the crunch EU meeting on 17th October. At that point, investors believed that a deal could be possible but with the Brexit deadline pushed back to January 2020 and the further uncertainty of a General Election, the pound was back under pressure. With the Conservatives having won the majority to push their Brexit deal through parliament and meeting the 31st January 2020 deadline, there may be more certainty in the coming year, which could reduce the volatility of the pound caused by Brexit.

What happens to the pound when the UK leaves the EU?
It’s not possible to predict whether the pound will rise or fall after the UK’s departure, but in the longer term, there may be a decrease in the pound’s volatility. Depending on the performance of the UK’s economy post-Brexit, there may be an opportunity for sterling to make gains. It also matters how Brexit is brought about. For example, as well as the potential impact on the economy of a no-deal, it prolongs the period of uncertainty of how overseas trade will be carried out. It’s also worth noting that while much of the focus has been on the pound’s value against the euro, sterling has fallen dramatically against the US dollar as well as the euro. Some experts have warned that no deal could put the UK in a recession and that the pound could reach parity with the US dollar. There is a chance for sterling to make gains but it’s likely that the market will be hoping for a much clearer picture of the road ahead than is currently available. 

Why do currency fluctuations matter?
If you are thinking about buying a property in Spain, you’ve probably worked out the price based on the exchange rate at the time you viewed it. However, it could cost substantially more when you come to do the money transfer due to subsequent rate movements before you came to settle. From 1st – 26th September this year, the pound touched a low of 1.09396 and a high of 1.13711 against the euro. That means if you are transferring GBP250, 000 to buy a property in Europe, there is a difference of EUR10, 787.50 depending on when you transferred the funds. 

How can I manage the impact of currency fluctuations on my overseas property purchase?
It’s not possible to predict or control the currency market, but there are specialist currency tools which allow people to track, target and even fix an exchange rate. In addition, a currency specialist can provide guidance on the latest developments in the currency market and provide support throughout the process to help you make the most of your money when buying a property in Spain.
 
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