Politics and economics
The impact of the past year’s political events on currency exchange rates
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.
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.