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 EffectLet’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.
2017 UK General ElectionOn 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. 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?