As the UK prepares to say au revoir to the EU, Laura Parsons reflects on what has been an eventful year for the currency markets and considers what might impact your money transfers to France in 2017
Laura Parsons looks at what might affect your money transfers in 2017
It’s a bit of an understatement to say that 2016 was a pretty crazy year for financial markets. It began chaotically with the stock market crash in China and only proceeded to get more volatile as the UK approached the EU referendum and ultimately voted in favour of Brexit.
While all financial markets experienced some element of upheaval in the immediate aftermath of the vote, the currency market recorded particularly dramatic shifts.
REVIEW OF 2016
The pound, which prior to 2016 had been holding its own against currencies like the euro and US dollar thanks to the comparatively strong performance of the UK economy, plummeted. Ahead of the referendum, analysts had predicted that the pound could drop to parity against the euro in the event of Brexit (where one pound is equivalent to one euro), and three months after the event, GBP/EUR was well on its way to making this estimation accurate.
On the eve of 23 June the GBP/EUR exchange rate was trending in the region of 1.31, but in October the pairing had crashed to a five-year low of 1.10. This historic slump of 21 cents meant that those moving money to Europe were receiving substantially less than they would have done pre-Brexit, while those sending money back to the UK from the continent were enjoying far greater returns.
To put this in real terms, the sterling slide meant that anyone transferring £200,000 to Europe when GBP/EUR was at its lowest point would have achieved 48,000 fewer euros than immediately prior to the vote. But are there further losses to come? And what can you do to make sure you’re getting the most from currency transfers to France in 2017?
FORECAST FOR THE YEAR AHEAD
The pound was already doing less than brilliantly when UK Prime Minister Theresa May sent it reeling further by asserting that Article 50 (the legislation that will formally trigger the UK’s exit from the EU) would be activated by the end of Q1 2017.
As many had hoped the activation would be delayed until Britain was economically and politically prepared for the consequences, the prospect of action being taken by the end of next March proved tough to swallow and the pound was swiftly driven from a three-year low against the euro to a five-year low.
The High Court later ruled that Article 50 couldn’t be activated without a parliamentary vote, and the prospect of either the legislation being delayed or a ‘hard Brexit’ (whereby the UK would lose access to the single market in favour of tighter immigration controls) being avoided helped the pound push above 1.12 against the euro achieving a multi-week high against the US dollar ahead of the US presidential election.
However, if Article 50 is invoked next year, or if the Bank of England (BoE) unleashes further stimulus in an attempt to protect the UK from the economic fallout of that step, the pound to euro exchange rate is expected to spiral lower once more.
Predictions that the pound could sink to parity are also more likely to become reality in the New Year.
A number of other factors may trigger GBP/EUR volatility, including the US Federal Reserve’s stance on interest rates, the European Central Bank’s approach to asset purchasing and the upcoming elections in both France and Germany.
While some of these concerns may weigh on the euro (and hinder the GBP/EUR downtrend to a certain extent) the pound’s long-term outlook remains neutral/negative.
If you were planning to purchase a property in France next year or need to send funds overseas for any reason, this might all be sounding a bit bleak – but there are steps you can take to ensure you secure the best possible return on your transfers and get more for your money in spite of Brexit fears.
MAXIMISING YOUR CURRENCY TRANSFERS
So, what are your options? Well, when it comes to managing international money transfers, the two most popular types of providers are banks and currency brokers. Historically, banks have monopolised the world of foreign exchange – in part because many people don’t
realise they have another option or that the other option could leave them better off financially. While banks will get your money where it needs to be, transfer fees and uncompetitive exchange rates could mean you don’t get as many euros for your pounds as you might expect.
However, as currency brokers negotiate different margins to banks (meaning they apply different margins to the currency they buy from the interbank market before they sell it on), they can offer better exchange rates.
As highlighted earlier on, even a small discrepancy in exchange rates can mean the difference of thousands on larger transfers, so the first tip to be aware of is to check the rates a provider is able to offer you before committing to a transfer. Additionally, some currency brokers work on a fee-free basis, meaning you’ll make further savings.
There are steps you can take to ensure you secure the best possible return on your money transfers in spite of Brexit concerns
STAY UP TO DATE
Another top tip when it comes to making sure you secure the best possible exchange rate is to stay updated on the latest currency news. As all the Brexit drama has shown, a surprising comment from a political figure or a disappointing economic forecast can have a sudden and dramatic impact on exchange rates, but currency trends can be tracked to a certain extent. As currency brokers employ industry experts, they are able to offer specialist market insight and provide invaluable guidance regarding the best time to make a currency transfer.
Some also give you the option of signing up to receive free market updates, making it easy to stay in the loop and plan to move your money at the most opportune time.
A final tip is to consider the different transfer options available, such as forward contracts. A forward contract gives you the ability to fix an exchange rate up to two years in advance of a transfer (and usually only requires that you place a 10% deposit). This strategy can be particularly useful when planning a foreign property purchase or emigration as it means you can budget effectively and secure your transfer against further slumps in the exchange rate.
In light of the expectation that the pound is likely to fall further in 2017, a forward contract could prove beneficial if you want to maximise the amount you receive for your currency transfer.
SO, WHAT NEXT?
With the UK’s future relationship with the European Union still uncertain, people are understandably cautious about the prospect of moving to France or investing in the French property market.
However, as it stands, the situation is unlikely to change significantly for two years following the activation of Article 50, so there are currently no barriers to you moving forward.
If in doubt about your plans, talk things through with reputable, independent industry experts, and if you do need to move money abroad, get the right people on your side to make sure you get the best return possible.