The possibility of Brexit, no matter how dim or vague, has, for all intents and purposes, created concrete and dramatic fluctuations in the UK economy to date. Although the likelihood of the Brexit movement succeeding has become less plausible in recent months, the turmoil created by this vote has sent shockwaves through the global currency markets, particularly with respect to the British Pound’s relationship to the Euro dollar.
According to recent data culled from the fx markets, the Pound is performing quite poorly against the Euro. With this in mind, a growing number of British residents are flocking to currency exchange centers in order to exchange their Pounds for Euro Dollars prior to summer vacations and other holiday outings in order to ensure that they can maintain their purchasing power in the event of further declines in their domestic currency. According to statistics released by the Post Office, the central source of currency exchange in the UK, there has been a 43% increase in the sale of Euros at this time compared to this point last year. The continued fear of economic and political turmoil has sent Pound / Euro exchange to nearly double their normal frequency at multiple points in the past few months.
Unfortunately, these fears are not without their real-world manifestations. Recently, the Pound fell to a record low against the US dollar, dipping to exchange rates which had not been seen since the height of the global financial crisis in 2009. Additionally, the Pound appears to have fallen up to 9% against the Euro Dollar, leading some experts to believe that a more staggering collapse of the Pound could be imminent as the Brexit vote nears. Adding fuel to the fire, HSBC has recently announced that their analysts have predicted that the value of the Pound may fall up to 20% more if the UK were, indeed, to leave the EU behind. Such pricing fluctuations would have staggering consequences in the UK, with import and export activities being severely disrupted.
In a prepared statement regarding the issue of GBP volatility, Justin Urquhart-Stewart, a representative of noted investing firm 7 Investment Management, stated, “Sterling is going to be as soggy as the British weather, and until the EU referendum is out of the way, the uncertainty is going to get worse.….You never know which way currency is going to go, but if you have a holiday booked I would get at least half of your currency now; maybe even more. I cannot see why the pound will get any stronger.”
There is, of course, no method by which the fine details of the fx markets can be accurately predicted for the upcoming months. Suffice to say, however, that there is a growing consensus that the Pound will, for better or worse, face turbulent waters for the rest of this year. Because of this, many financial advisors are recommending that those individuals seeking to enjoy a European or international holiday abroad this summer would do well to begin withdrawing the cash they plan on using during their travels now. According to David Black, the founder of noted financial analysis firm DJB Research, “If you know you are definitely going away this summer and you have the cash to spare, then it might be an idea to work out how much spending money you will need and get half now”.
More information regarding the fate of the Pound will likely reveal itself in the upcoming months. Until then, those individuals who do plan on using their finances for international activities are advised to keep a watchful eye on the fx rates as they fluctuate. Although a rally in the Pound has been predicted in the event of a “stay” vote during Brexit, it is far too early to determine whether or not this will, indeed, occur.