Moneycorp - Post Brexit Update

18th July 2016

Events of the past month have sent shock waves through the currency markets. Now we’re over the initial surprise of the referendum result, leadership race and subsequent economic insecurity, we now look to the future and how we can support businesses who are trading internationally.

Since events of 23rd June, the currency markets have seen sterling weaken 10% against the euro and 14% against the Dollar, which has fallen to rates not seen since 1985. Gains for sterling have emerged over the past few days thanks to support stemming from the clarity of the news that Theresa May is named as Prime Minister, and the Bank of England holding interest rates at 0.5% on Thursday (however, interest rates are being increasingly predicted to be cut next month to help stave off an impeding recession).

It’s important to highlight there are winners and losers within such volatile markets. This is a great time for our exporters who are finding their goods more affordable, whereas importers are having to take precautionary measures to ensure their profit margins are protected. Some businesses will be hedged for the next 3-6 months but looking further forward they may face challenges against budgeted levels. It’s also not as straight forward as considering importers as the losers with victorious exporters; as many exporters also import elements of their merchandise for production.

Key factors affecting the markets include; current affairs, politics, economic performance and data releases which also contain consumer confidence figures. In recent weeks all of these factors have been influencing the pound but key points to note include the belief that the UK’s Brexit vote has the potential to set off further referendum calls from other EU nations. The effect of this may be to weaken the Euro which could lead to a recovery for sterling, but this is not forecasted for the short term.

In future news, the intensified coverage and subsequent outcome of the US elections in November will have global implications on the currency markets as each leader has differing views on international policy. We are likely to see the dollar unsettled closer to the time, while safe havens such as the Swiss Franc and Gold will strengthen. Before then however, we could potentially see the Fed hike rates in September 2016 after strong employment data suggests underlying strength in the US labour market.

Whenever a client is trading internationally, on top of facing budget challenges caused by volatility they may face slow inefficient payment processes, bank charges, cash flow issues and less than competitive exchange rates. As always we are urging clients to focus on protecting their budgeted levels and NOT play the foreign exchange markets. There are different ways clients can buy currency including for immediate delivery or fixing the rate for up to two years with a forward contract. By securing at least a portion of their requirement clients can face greater certainty and by using a specialist broker such as Moneycorp they can ensure competitive exchange rates and free expert guidance.

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