One of the biggest questions is everyone’s mind nowadays is where is the pound heading to. Does this mean things will definitely go down this route that I envision? Absolutely not. When it comes to economics, politics and foreign exchange rates (all closely tied) no one really knows what’s coming
What will make or break the pound?
The thing that will make the pound make, or break, is whether a Brexit agreement will be formed in the coming months, before the people, the EU, and the market will reach a definite conclusion that there is no agreement (i.e. a hard Brexit). Will any agreement of an orderly Brexit will bring back confidence to the pound? Probably not, but once an agreement has been reached, it is likely that the downslide of the pound will stop (but not sure going to recover its rates).
What are the chances of an agreement taking place?
The EU’s stances on the Brexit negotiation were very rigid right from the beginning, and it doesn’t seem, or at least not reflected back to the media, that these stances have changed over the course of the year. The EU is well aware of the fact a hard Brexit will be devastating to the British economy, and they will make the best out of the situation (which is ill-favored to them, to begin with, because the EU would have been better off with the UK). The disarray and fear rising in the UK will only refuel the flames, it is now more apparent than ever than that the EU will essentially decide on the state of the economy in the UK for the next 5-10 years at least.
Where should be pound be heading to in each scenario?
- If a deal is made by October, it passes and regarded as a good deal for the British economy, the Sterling may jump 5-7% back to the 1.20’s (against the Euro).
- If a deal is made by October, passes but it is seen as the kind of deal that May was forced into complying with and is not favorable enough with the economy, we are seeing the 1.15-1.18 range as fit (pretty much where it’s been at over the past few months).
- If a deal is made by October, but PM May is unable to pass it, it signals a “no-deal” and pound will shift below 1.10 against the Euro and may reach parity by year’s end.
- If no deal is made by October, it signals a “no-deal” and pound will shift below 1.10 against the Euro and may reach parity by year’s end.
Out of these scenarios, there is almost no upside to the pound. Only if the best scene takes place we will be experiencing 5-7% increase, but in every other situation, the GBPEUR will either stay where it is now or decline. Hence, if you are considering exchanging your GBP to EUR and waiting for the “rates to improve”, we think it’s unrealistic. Better to pull the trigger now than to expect big hopes from a nation that voted “leave”.
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