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2017 UK General Election And The Potential Impact On Currency Markets

June 6, 2017 business

UK 2017 Elections: Will the Pound Get Stronger Against the Dollar?

In recent years, we’ve witnessed an unprecedented number of political events causing major volatility in the world’s financial markets. From the shock Brexit result last summer, to Donald Trump’s surprise US election victory, to recent European elections and even a ‘flash crash’ in October 2016 believed to have been caused by comments made by the then French president Francois Hollande. All these events resulted in large movements in the currency markets.

With the British public set to go to the polls on Thursday 8th June, we decided to examine the potential impact the UK General Election may have on the markets. In this blog we look at how individuals and SMEs can use CurrencyFair’s innovative peer-to-peer (P2P) marketplace to hedge their currency risk and better manage any financial exposure.

2017 UK General Election And The Potential Impact On Currency Markets

The Brexit Effect

Let’s wind the clock back twelve months. On 23rd June 2016, despite pollsters and bookmakers suggesting the opposite, the UK voted to leave the European Union. The following day, the financial markets reacted spectacularly to the shock news.

  • The value of GBP rapidly devalued, beginning its plummet to 31-year lows against the US Dollar, decreasing from 1.49036 to 1.36753 over the course of one trading day;
  • People and companies wishing to exchange sterling or pay bills in other currencies were, and continue to be, receiving a lot less and paying a lot more;
  • On the flip side, people and companies wanting to purchase sterling were and continue to be, in a more lucrative position;
  • Because of this sudden drop in the value of GBP, there was a huge increase in trading activity as traders rushed to cut their losses and hedge their risk.

The huge spike in trade activity and volume had a significant impact on currency brokers and exchange platforms. The vast majority of our competitors had to close their business for the day, leaving customers high and dry when they were needed most.

However, as CurrencyFair is built on modern, scalable technology, our peer-to-peer marketplace remained open, serving our clients business as usual.

2017 UK General Election

On the day, and days following this week’s UK general election results, we can say with confidence that there will be increased volatility in the currency markets. We have already seen increased fluctuations in the past few weeks, as the GBP-EUR chart below shows.

brexit-gbp-eur

Depending on how the election results play out, we can expect to see a stronger or weaker GBP. Individuals or businesses who know they have an imminent requirement to purchase GBP are therefore in a tricky predicament:

  • Will I get more value (a better price) before or after the election?
  • Will my currency provider even be open for business during that volatile period?

Fortunately, on the back of seven years of technology innovation, CurrencyFair’s innovative P2P marketplace provides the ideal solution to manage any post-election volatility.

1. Exchange Now

The very nature of a peer-to-peer exchange is that it cuts out the middleman. By using CurrencyFair, our customers cut out the banks and their excessive fees, meaning they get great rates that are up to 8 times better than the banks. If you need to make an exchange right now, and can’t afford to wait for a better rate, then CurrencyFair gives you a great deal.

2. Set Your Rate

One of the unique benefits of our online P2P marketplace is that it allows the customer to set the rate at which they want to exchange. If, for example, you wished to exchange EUR-GBP but were not time sensitive, and were willing to wait for a better rate, you could set a rate that is better than the current interbank rate. You wait for the market to move in that direction, and once your order gets filled, you get the exact price you wanted.

How It Works – An Example

Company X runs a car importing business based in Ireland. It has a 100,000GBP invoice which it requires to pay within the next 30 days to its UK auto provider. With Currencyfair:

Exchange Now
Company X places a QuickTrade on the CurrencyFair exchange, to get an immediate match on the trade, at the price shown on the screen (which includes our average fee of just 0.4%). At the time of writing, the total cost of this trade would be €114,628.27. Using one of the big Irish banks would cost €117,670. This is a saving of €3,041.73.

Set The Rate
Alternatively, anticipating a weaker pound, company X places a MarketPlace trade at 3% above the current rate. Should the market move in that direction the cost of the 100,000GBP trade would be down to €111,386.03. This would be a saving of €6,283.97 compared to the banks.

With just days remaining until the UK once again goes to the polls, we wait with anticipation to see how the currency markets react. With an innovative P2P marketplace and a track record of staying open for business during the most volatile times, CurrencyFair is the strong and stable money transfer company that deserves your vote.

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