Pol­i­tics and eco­nom­ics

The im­pact of the past year’s po­lit­i­cal events on cur­rency ex­change rates

Living France - - Contents - Laura Par­sons is a cur­rency an­a­lyst at TorFX torfx.com

If you’re con­sid­er­ing buy­ing a home in France and mak­ing the move across the Chan­nel, the dra­matic move­ment we’ve seen in the GBP/ EUR ex­change rate over the past 12 months might be giv­ing you some cause for con­cern.

The ex­change rate you’re able to se­cure for a cur­rency trans­fer can have a huge im­pact on how much money you ul­ti­mately re­ceive, and mist­im­ing your trans­fer could cost you thou­sands.

But has the cur­rency mar­ket calmed down after a dra­matic year? Or is there more move­ment to come? And what can you do to pro­tect your cur­rency trans­fer from neg­a­tive mar­ket move­ments?

In ‘nor­mal’ con­di­tions, the pound is a com­par­a­tively sta­ble cur­rency, with move­ment typ­i­cally oc­cur­ring in re­sponse to UK data re­leases and eco­nomic news. How­ever, 2016 changed the state of play.

ALL CHANGE

June’s EU ref­er­en­dum marked a turn­ing point for GBP ex­change rates. Although the pound grad­u­ally weak­ened in the build-up to the vote, the over­whelm­ing con­sen­sus was that the UK would vote to re­main part of the Euro­pean Union. Con­fi­dence in the out­come was so high that GBP ex­change rates ral­lied on the eve of the vote.

How­ever, as we now know, all the polls point­ing to a ‘Re­main’ vic­tory turned out to be wrong. The pound plum­meted as a re­sult of the UK’s un­ex­pected decision to vote in favour of leav­ing the EU, and po­lit­i­cal news has been the driv­ing force be­hind de­mand for ster­ling ever since.

Po­lit­i­cal devel­op­ments in the euro­zone have also been trig­ger­ing EUR shifts, with con­cerns that the wave of pop­ulism seen in 2016 could dec­i­mate the cur­rency bloc keep­ing the euro un­der pres­sure.

Brexit un­cer­tainty, in­fight­ing in the ma­jor po­lit­i­cal par­ties, Trump, Ar­ti­cle 50, Le Pen – all these fac­tors have been re­spon­si­ble for sig­nif­i­cant shifts in the GBP/EUR ex­change rate. In fact, over the last 12 months the GBP/EUR ex­change rate has moved be­tween highs of €1.3174 and lows of €1.1067.

What does this mean in real terms? Well, sim­ply put, it means that any­one want­ing to ex­change pounds for eu­ros would have re­ceived €197,610 for £150,000 when the rate was at its high­est point, but €166,005 when the rate was at its low­est. That’s a mas­sive dif­fer­ence of €31,605 – proof that get­ting the tim­ing right is cru­cial when trans­fer­ring money abroad.

After hit­ting multi-year lows against all the ma­jor cur­ren­cies, the pound did man­age to re­coup some of its losses – no­tably achiev­ing some of its best postre­f­er­en­dum lev­els on the back of Prime Min­is­ter Theresa May’s decision to call a snap elec­tion – but the out­look for the cur­rency re­mains ques­tion­able.

While we’d hoped the cur­rency mar­ket might calm down a bit in 2017 after last year’s chaos, so far it’s shap­ing up to be al­most as tem­pes­tu­ous. The trig­ger­ing of Ar­ti­cle 50 sparked move­ment in March, while the French elec­tion in­spired euro swings in both April and May.

MAN­AG­ING YOUR MONEY

With Brexit ne­go­ti­a­tions be­gin­ning in earnest and Ger­man elec­tions ahead, we can ex­pect fur­ther sig­nif­i­cant GBP/EUR fluc­tu­a­tions over the next few months. So if you’re go­ing to be send­ing money to France in the near fu­ture, is there any­thing you can do to pro­tect your funds from a sud­den shift in the ex­change rate?

The short an­swer is yes you can. And one of the eas­i­est things you can do is to spend a lit­tle time re­search­ing the dif­fer­ent in­ter­na­tional money trans­fer providers you could use to man­age your funds.

Although it’s easy to as­sume that us­ing your bank to move money abroad is the sim­plest so­lu­tion, there are al­ter­na­tives that can save you both time and money. The most pop­u­lar of these al­ter­na­tive providers are spe­cial­ist cur­rency bro­kers.

As cur­rency bro­kers live and breathe ex­change rates, they have the un­der­stand­ing and ex­per­tise nec­es­sary to en­sure you’re get­ting the best pos­si­ble re­turn on your cur­rency trans­fers. They are also able to of­fer a range of ser­vices that can be tai­lored to suit your own in­di­vid­ual re­quire­ments.

Be­low we ex­plore some of the most com­mon cur­rency trans­fer needs and the ser­vices best suited to man­ag­ing them.

NEED TO MAKE A TRANS­FER RIGHT NOW?

Use a spot trans­fer. With a spot trans­fer, the aim is to se­cure the most com­pet­i­tive ex­change rate avail­able at the time and make the trans­fer ‘on the spot’ – so you’ll have ac­cess to the funds as soon as pos­si­ble. Keep­ing track of the lat­est cur­rency news can help you time your trans­fer more ef­fec­tively.

WANT TO BUD­GET FOR A FU­TURE TRANS­FER?

Use a for­ward con­tract. The cur­rency mar­ket is highly volatile and ex­change rates can shift dra­mat­i­cally in a rel­a­tively short amount of time. If you know you’re go­ing to need to make a cur­rency trans­fer in the fu­ture and you want to safe­guard against shifts in the mar­ket, you can use a for­ward con­tract to fix an ex­change rate for up to two years in ad­vance of a trans­fer.

HAVE A SPE­CIFIC EX­CHANGE RATE IN MIND?

Use a limit order. If you’re not par­tic­u­larly in a rush to make your cur­rency trans­fer and would rather wait un­til the mar­ket hits a cer­tain level, you can use a limit order to tar­get a spe­cific ex­change rate. Your trans­fer will be made au­to­mat­i­cally when your tar­get rate be­comes avail­able so you won’t miss out.

DON’T WANT TO TRANS­FER AT A POOR EX­CHANGE RATE?

Use a stop-loss order. A stop-loss order is a handy way of pro­tect­ing against a sud­den drop in the ex­change rate as it gives you the abil­ity to set a worst-case rate. If the ex­change rate de­te­ri­o­rates to that level your trans­fer will oc­cur au­to­mat­i­cally, lim­it­ing the risk if the mar­ket moves against you. With clouds swirling over the po­lit­i­cal land­scape, it’s more im­por­tant than ever to be aware of all the op­tions avail­able to you be­fore mak­ing an in­ter­na­tional money trans­fer. With the right sup­port and in­sight you could get sig­nif­i­cantly more for your money, so tak­ing the time to do a lit­tle re­search can re­ally pay off in the long run.

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