In the wake of Brexit, we’ve witnessed the large drops in Sterling value which continues its downward spiral with very little hopes of recovery. The hardest aspect to accept is that Brexit hasn’t technically begun, and won’t begin until someone triggers Article 50.
That person is yet to be confirmed, which in itself, creates further volatility in the market. David Cameron’s planned departure only adds salt to the wound with what looks like Theresa May to pick up the pieces. So what is the outlook for the UK as we enter the first stages of Brexit and would implications might this have on your currency requirements?
Pound Sterling to fall to parity with the Euro?
It was said by UBS back in April that the Pound could fall to parity with the Euro in the event of Brexit, and it’s looking more likely to materialise. Current exchange rates of 1.17 have not been seen for 3 years and there are a number of factors ahead that need to be considered.
Next week the BoE could be forced to cut Interest rates to boost spending which historically, has negative implications for a currency. I suspect that the Pound could lose 3-5 cents on the news, levels not seen in 5 years.
And to think that this is before we’ve triggered Article 50, discussed negotiations with the EU and dealt with a potential recession. All the signs appear to point towards Pound weakness with very little safety nets.
When will the Pound recover?
If we assume that Article 50 will be invoked once the new Prime Minister comes in, it could be a minimum of 2 years before we see any formalised negotiations. That’s 2 years of uncertainty in which the Pound could be on the weaker end of the scale. But there is no guarantee that negotiations will take 2 years and there is no guarantee as to when Article 50 will be triggered, lending its way to an extended period of uncertainty.
With further concerns for the UK ahead, it may be wise to cut losses and make an exchange sooner rather than later. In the event the BoE cut rates next week, you could be in an even worse position than today. That being said, once Article 50 is triggered and negotiations take place, the Pound could start to recover as certainty begins to form.