Are you looking to buy a holiday home abroad or simply preparing for your summer holiday expenses? You may or may not have realised that in the last week exchange rates have started to fall, and this trend is likely to continue for the foreseeable. If you are preparing to exchange Sterling for US Dollar, Euro’s or any other major currency, I would recommend you read this article sooner rather than later.
Why is Pound Sterling weakening?
The upcoming EU referendum is putting the Pound under pressure as investors are assessing whether the UK is heading towards withdrawal from the EU. This political event is creating hefty uncertainty within the market and as polls now move towards a leave vote, Sterling will most likely weaken further.
The EU referendum is now 1 week away and the closer we get to the 23rd the higher the volatility for Sterling. There is a potential risk that GBPEUR rates could all to the low 1.20’s and GBPUSD rates could fall to the low 1.40’s.
The outcome of the referendum is a financial gamble
The opposite can be said if the UK remain within the EU, GBPEUR rates could move to the mid 1.30’s and GBPUSD rates could move into the 1.50’s for the first time this year, but the outcome of the referendum is unknown and you have to weigh up the cost implications of a leave vs remain.
As it stands, GBPEUR exchange rates are still trading slightly higher than the 10-year average, which doesn’t make an exchange that unattractive. If you were to exchange £1000 today you are looking at €1250 Euro’s, you could be £100 worse off in the event of a Brexit.
GBPUSD rates are already at a 7 year low and has been since the beginning of the year. That being said, any suggestions that the FED will raise hikes this year could result in further GBPUSD weakness, making the exchange this side of the referendum may not be the worst idea.
You may wish to gamble on the outcome of the referendum, and this is completely at your discretion. However, polls are now suggesting a Brexit could well be at play and the stakes have never been higher.
Key economic releases for the UK could impact Sterling further
Core consumer price data is due to be released on Wednesday which is a strong measure of inflation, this has a strong potential to weaken Sterling but will have limited impact if the data proved positive.
Thursday’s UK retail sales could potentially be a market mover as well; retail sale figures have trended towards the negative in recent releases which is why I’m airing cautious towards more potential Pound weakness.
The BoE minutes shortly after will be an opportunity for them to reiterate the implications of a Brexit on the economy, which previously saw positive movements for Sterling. I do however feel at this stage that any further warnings will have limited impact on the currency with only a few days prior to polling.
If you are looking to go abroad, accessing the current exchange rates now could save you in the event of a Brexit.