The decision to exit the EU has immediate and then more uncertain repercussions.
The immediate is the fall in the value of the Pound. That is to be expected; uncertainty is never a welcome development in financial markets and change to a 40 year old arrangement is about as uncertain as it gets. However, that initial knee-jerk reaction appears to have run its course and has been replaced by a sort of uncomfortable nervousness across the markets.
With so many unanswered questions; not least the one about when Article 50 will be invoked, there is plenty of room for further volatility and that will occur with each comment from a central banker, each hint from a trade body; I am pretty sure Kerry Katona could move the market when things are this edgy.
What hasn’t transpired yet is the shape and nature of the deal that will be made between the independent UK and the EU. A lot of water will have to flow under that bridge before we reach a conclusion and the efforts to negotiate will undoubtedly cause further volatility. And the starting gun (the invoking of Article 50 of the Lisbon Treaty) is yet to be fired, so we are in limbo; hence the levelling off in the value of the Sterling – Euro exchange rate.
When those negotiations do get underway, the currency will be peripheral but the nature of the agreement on overseas property owners is an entirely unknown quantity. That is the same for UK owners of Spanish villas as it is for German owners of UK factories. Either current tax or ownership rules will need to be agreed and fixed in law or new ones forged and that is a concern for current owners as well as potential new ones.
At the time of writing, we cannot begin to know how that will pan out. Will this become a negotiating chip or will the importance of cross border ownership be enough to see early agreement on the matter? As with so much of the Brexit debate, no one knows yet. As for the currency; well Sterling has survived the initial shock of the ‘Leave’ vote and has recovered somewhat. Technically, Sterling bounced from long term support levels and, whilst the media were keen to highlight the 30 year lows in the value of the Pound; that was really only against the US Dollar. Against most other currencies, the Pound levelled off at 2 and 3 year lows.
We also have to wonder what will happen to the Euro. Seeing the 2nd largest economy and 2nd largest contributor to the EU leave will have a profound effect on the EU economy and that is likely to weaken the Euro in time. We haven’t seen the start of that yet.
In essence, the future seems set to be just as volatile as the recent past and we need to ensure everyone with a currency need is prepared and protected against the worst vagaries of the forex market. The process we would suggest for overseas property buyers/sellers is
- Open an account with a foreign exchange specialist such as Halo Financial at your earliest convenience so you receive their advice and can plan accordingly for the expected volatility
- Consider a ‘limit order’ (ask your currency consultant for more details). While Pound sellers may feel they have missed the boat, ‘stop loss orders’ will let you set a ‘worst case scenario’ rate if you have time to wait and see if your rates improve again, which coupled with a ‘limit order’ will give you the best chance of benefitting from any surprise fluctuations in the market over the next few months
- Ask your currency consultant to set up a weekly call back so that you can get an update on the market and what is forecast
Senior FX Analyst