October 2016 currency update: Brexit deadline announced
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With the announcement of a deadline for the enactment of Article 50, the value of the pound fell. Currency experts explain the drop, look at what might happen next and reveal how French property buyers can safeguard their budget and seize any opportunities
The wait is over. We now have a firm period before the enactment of Article 50. Theresa May surprised markets early last Sunday with the announcement that the formal process to leave the EU will begin by March 2017. The surprise itself was enough to cause some nervous drops in the Pound’s value, but the movement was initially marginal.
Areas of opportunity following the referendum have been found for some areas of the UK economy, and as such some of the confidence lost in the Pound last month has been recovered. The ‘flash crash’ likely caused by a rouge automatic trading algorithm in Asian markets was enough to see the Pound weakened artificially heading into the weekend of the 8th October – but this is not suggestive of a dramatic trend. In fact the Bank of England are investigating the situation to see if any criminal activity has occurred to cause this unjustifiable crash in the Pound’s value.
We have a date for Article 50 – how will this affect anyone needing Euros in the near future?
The news itself of a March deadline was only a marginal shock. Boris Johnson had already been making similar hints, and the announcement was made over the weekend to try and dampen any severe market reaction – which it has since GBP/EUR was only down a total of 1% following the news by Wednesday.
We now have up to 6 months before we begin the 2-year-long negotiations to leave the European Union. So this small drop on buying Euro rates represents this relative calm in the marketplace. This is not anywhere near the panic seen on Brexit day when the Pound fell by more than 10% in the space of 24 hours. As such March should not be seen as a ticking bomb.
Over the next 6 months we will be drip fed hints of how pre-negotiations have been going in the Eurozone. We have already heard murmurings from European politicians realising that they will have to work with the UK on this, despite their tough political stance to discourage other nations from doing the same.
For example the head of Germany’s largest business group has said Europe will be hit harder than the UK from Brexit due to the loss (or more accurately the shrinking) of the UK’s large consumer market and their desire for more expensive European goods in the case of a hard Brexit. Positive noises towards what needs to be some form of unique compromise should see some pressure on the Pound relieved.
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Furthermore, whilst Brexit has dominated the headlines, some sticking points in the Eurozone are beginning to come to the fore. The upcoming Italian election has markets worried about their own nationalist parties gaining power and forcing a referendum in Europe’s fourth largest economy. Alongside their banking crisis and the concerning look at the stability of the German banking sector this means that opportunities should continue to emerge for Euro buyers as 2016 comes to a close and 2017 comes to the fore.
To see current live interbank rates visit www.currencies.co.uk/live-exchangerates
How best to approach a property search and purchase over the next few months
Whilst the positive atmosphere is growing there is still a large cloud of uncertainty surrounding the currency markets with a particular focus on the Pound at the moment.
Whether you are on verge of signing on a property, potentially submitting an offer, or will be viewing soon, it is important to be in contact with a specialist currency broker to discuss how to safeguard your budget, seize any opportunities emerging which correspond with a target rate you are aiming for, and keep abreast of any changes in expectations and market trends which you should be made aware of.
You can also fix the rate of exchange as it is on any day you wish for up to 18 months, which is similar to what many may have done when booking holiday money, but on a more commercial scale. This is done using a popular option called a forward contract. A small deposit guarantees the rate of exchange for a prolonged period, either as you wait to complete on a property, or even as you are searching for a property and want to have a guaranteed budget whilst viewings are being conducted and potential offers being made.
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