So far in 2017, we have seen the currency markets impacted by President Donald Trump’s inauguration and the UK’s move towards Brexit.
There is no doubt the pound is in for an interesting year. British consumers need to be prepared of political events that could hit their finances this year.
There are a number of potential political events coming up which consumers should be aware of: from Article 50 being triggered to the elections in France and Germany as well as the developments in the China-US relationship under Trump. These events have the potential to de-stabilise global currency markets.
How will politics come into play
Will Shepherd, head of treasury at international payments fintech OFX shares his thoughts on how the upcoming events in 2017 are likely to impact sterling.
He says: “Although UK economic data has looked optimistic for the pound in recent months, global risks like Trump’s administration and an unstable European Union may weaken support for the pound this year.”
Shepherd adds: “Trump’s isolationism stands in stark contrast to the indicated foreign policy of Theresa May, and this disparity is likely to have a big impact on sterling as the currency market fluctuates in response to shifts in the special relationship.”
The triggering of Article 50 to provoke further instability
Watch out for the triggering of Article 50. Prime Minister Theresa May has said she wants to invoke Article 50 by the end of March. What will this mean? Volatility on the pound will be exacerbated no doubt.
Shepherd says: “The formal submission of Article 50 could well provoke further instability for the pound as it elicits a formal response from the EU. The negotiating stance implied by both parties makes it difficult to predict what the reality of Brexit will look like, the only certainty being that neither side will want to show any weakness as negotiations commence.”
So how can Brits mitigate risk?
Shepherd explains one way Brits can mitigate the risk to their personal finances is by using forward contracts from a currency transfer specialist.
These contracts allow consumers to lock in today’s exchange rate for up to 12 months, enabling them to guard future international payments against unexpected moves in the pound.
They’re a great way to get peace of mind when dealing with a volatile currency market, and mean you’ll know exactly how much your foreign currency will cost you this year.
Shepherd explains: “Ultimately, this means you can keep your cash under control – useful, if you’re planning to make any major international payments this year, for instance when buying a property.”
Written by London-based journalist Tanzeel Akhtar. Her work has been published in the Wall Street Journal, FT Alphaville, CNBC, Citywire, Euromoney, Interactive Investor.
Disclaimer: The content on this page does not constitute financial advice and is provided for general information purposes only. Nothing on this page should be regarded as an offer to conduct investment business or to buy/sell any investment.