In the three years since the UK voted to leave the EU we’ve seen politics exert a startling effect on the Pound.
Since the British public voted to leave the Union in 2016, currency traders, economists and even the Treasury have made ominous warnings about Sterling volatility. And indeed, this is precisely what we’ve seen, with some major swings in GBP exchange rates dictated by Brexit uncertainty.
Now that Boris Johnson has seemingly secured a Brexit deal with the EU (accurate since 17th October 2019), we thought it would be worth investigating how our currency has been affected from the UK leaving the EU.
Sterling’s initial reaction to Brexit
Currency markets had a swift and visceral reaction to the UK’s vote to leave the EU, with the Pound plunging on uncertainty over the UK’s future outside the EU.
In the months following this initial slump investors were hopeful the shelf would level off, but instead Sterling moved even lower with the Conservative leadership contest increasing political uncertainty and the Bank of England (BoE) slashing interest rates to a record low.
Subsequent movement in GBP exchange rates
In the years following the Brexit referendum markets have seen dramatic swings in the pound.
This includes striking a 34-year low against the US Dollar, with GBP/USD trading down to $1.19 and GBP/EUR dipping as low as €1.06. This triggered a legitimate fear that the Pound might reach parity with the Euro.
At the other end of the scale the Pound traded as high as $1.43 with the US Dollar and touched €1.19 with the Euro.
Brexit’s impact on currency transfers
Sterling volatility has had a profound effect on those moving money overseas. Dramatic fluctuations in GBP exchange rates have not only resulted in the value of transfers differing wildly from one month to the next but have made it almost impossible to accurately predict future rates.
By way of example, someone seeking to transfer £250,000 to Spain would have received around €280,000 in July this year.
However just two-weeks later the same transfer would result in a much reduced €265,000 following a sharp fall in the Pound during early August – the result of Brexit uncertainty.
What’s the current Brexit situation?
Since assuming office in July, Prime Minister Boris Johnson and the Tory government have struck a hard-line stance and have repeatedly vowed to lead the UK out of the EU on 31 October with or without a deal in place.
While Johnson has frequently refuted claims that he intends to crash out of Europe without a deal, Brexit, investors remain dubious of his motives and the perceived risk of a no-deal Brexit has risen significantly under his premiership.
However, things took a more positive turn last week and the Pound surged to multi-month highs on hopes a Brexit deal could still be obtained. Since then a deal has been reached but whether or not it will be accepted by the DUP and opposition MPs is another story.
With time rapidly running out, further volatility is all but guaranteed.
Protecting your money from further Brexit volatility
If you’re worried about how Brexit may impact your own money, there are steps you can take to mitigate your exposure to currency volatility.
The most straight forward method is to stay up to date with all the latest currency news and time your transfers when conditions are most favourable.
However, Brexit uncertainty and sudden Pound swings make this extremely difficult.
Get a quote from TorFX today and see how you could protect your currency transfers from Brexit volatility.