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The Brexit process has begun – what’s next for the Pound?

By HiFX   /     Mar 29, 2017  /     Europe  /     , , , , , , , , , , ,

Almost exactly nine months after the UK voted for Brexit, Theresa May has triggered Article 50, which begins the formal negotiating period for the UK to leave the EU. The UK’s ambassador to the EU, Sir Tim Barrow, has delivered a six page letter from Theresa May to EU President Donald Tusk.

In a statement to the House of Commons, Theresa May stated that her aim was for the United Kingdom “to emerge from this period of change stronger, fairer, more united and more outward-looking than ever before”. She stressed her desire to maintain a positive relationship with Europe but also to build relationships with “old friends and new allies” elsewhere in the world.

She also talked about her desire to strengthen the union between the four countries within the United Kingdom, and also to ensure “EU nationals who have made this country their home” were represented in the talks.

The UK now enters a two year negotiating period to determine the new relationship between the UK and the EU.

What happens next?

It is expected that the EU will provide an initial response within 48 hours of Article 50 being triggered. This response is likely to be highly scrutinised as it will set the tone for the negotiations to come.

However, it is unlikely that there will be much further action from the EU until 29th April, when EU leaders are meeting for a summit to agree the guidelines for the EU’s negotiating team.  It is likely that their first focus will be on agreeing the rights for EU expats in the UK and British expats in the EU, as well as whether the UK will be expected to make payment to cover the EU’s budget for current and future commitments.

An area yet to be clarified is the exact scope of the talks. Theresa May has indicated that she would like to discuss both the process for leaving the EU and the formation of a new relationship – including a new trade agreement – at the same time. However, the EU’s chief negotiator Michel Barnier has said he wants to focus on the separation before talks can start about trade.

In May, the European Commission will publish its negotiating guidelines and negotiations can fully begin. The aim is to complete negotiations in October 2018, to give time for governments both within the EU and UK to vote on the deal.

It is expected that the UK will formally withdraw from the EU in March 2019. If negotiations are not completed at this point, an extension is a possibility if all 27 EU member states approve it.

What does this mean for the Pound?

It was expected that the currency markets would react fairly calmly to the triggering of Article 50, as there has been plenty of forewarning that it was coming. This appears to have been the case so far, with the Pound fluctuating between losses and slim gains against the Dollar and the Euro.

But there is still a great deal of uncertainty around what happens next as no country has ever left the EU before. It is expected that this could create some currency fluctuations for the Pound against both the Euro and the Dollar, as markets react to signals from the ongoing negotiations. Deutsche Bank has suggested that Sterling could fall another 15% against the Dollar by the end of 2017. Alongside Brexit negotiations, the potential for a second Scottish independence referendum could also add to concerns around the Pound.

On the other hand, Barclays anticipate a rebound could be coming for the Pound following strong retail sales data in February. Overall, the UK economy has remained reasonably resilient so far, which has helped to boost the Pound on a number of occasions in recent months. In particular, the most recent announcement from the Bank of England’s Monetary Policy Committee was more positive than expected. If there continues to be some discussion about increasing interest rates, this could help to strengthen Sterling.

It is also worth remembering that exchange rates are a ratio between two currencies. So if something happens overseas to weaken a country’s currency, it can strengthen the Pound as a result. The US Dollar has come under pressure recently following Donald Trump’s healthcare defeat, as some have raised questions about the effectiveness of his leadership. Meanwhile, French elections in April and May and German elections in September could put some pressure on the Euro, at least in the short term.

What does this mean for me?

The current uncertainty makes it seem likely that there will be some currency fluctuations in the coming weeks and months. But the good news is that, whatever happens next, there are options available to you that could help you to get more for your money or give you peace of mind:

  • If you want to make an international money transfer, our website is available 24 hours a day, seven days a week if you have a HiFX account.
  • If you have a large transfer planned, such as an overseas property purchase, you may wish to consider securing the current exchange rate for up to three years with a forward contract. This allows you to buy currency at the current rates, but pay for the majority of it later. This means you will know exactly how much you will be paying, no matter what happens to the currency markets.
  • If you have regular transfers, such as for a mortgage or pension, a regular payment plan could help to give you peace of mind. You can automate your payments and secure your exchange rate for up to two years, so you always know exactly how much money you’ll receive and when it will arrive.
  • If your business has exposure to foreign exchange, we have a range of contracts that could help you to mitigate your risk, such as forward contracts, FX options and FX structured products.

Or if you’d just like to keep an eye on market trends before you make any decisions, HiFX can be your eyes and ears in the market. With a HiFX account, you can take advantage of our customisable currency charts and personalised rate alerts.

To discuss your personal situation in more detail, please call our friendly team of experts on 01753 859 159.

 

The details expressed in this transmission and accompanying documents are for information purposes only and are not intended as a solicitation for funds or a recommendation to trade. HiFX Europe Limited accepts no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the above information. HiFX Europe Limited is authorised by the Financial Conduct Authority under the Payment Services Regulations 2009, registration 462444, for the provision of payment services. HiFX Europe Limited is also a registered MSB with HM Revenue & Customs. Registration number: 12131222. HiFX is a limited company registered in England and Wales. Registered number: 3517451. Registered office: Maxis 1, Western Road, Bracknell, Berkshire, RG12 1RT.

 

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