A Personal Guide to Navigating Pound Money Transfers After Brexit

Currency Risk Awareness & Strategy More Important Than Ever

The results of a historic referendum are in, the citizens of the United Kingdom have voted to leave the European Union, sending shockwaves around the globe. One of the primary concerns of the Brexit is how it will impact the economy. This is perhaps best reflected in the volatility of the pound in the days surrounding the referendum, with the Brexit results announcement coinciding with the pound dropping to its lowest value in over 30 years. Though the pound has since gained back some of its value, it can be expected to fluctuate for some time following the United Kingdom’s vote to exit the European Union, a process that will take at least two years. What does this mean for the British Pound and you? For those who deal in multiple currencies, including the British Pound, how will Brexit affect their financial transactions?

Your money transfers over the coming months

If you regularly exchange money internationally from the United Kingdom, the volatility of GBP will be affecting your personal finances more than ever. It is important to transfer money at the best rate possible, to prevent further unnecessary cost and/or loss.

If you are planning to make a large purchase in GBP, or you will be selling GBP in order to make a purchase in Euro or USD, the volatility of GBP will make it hard to predict what your actual cost or profit will be.

If you send regular payments overseas, such as mortgage payments on an international property, or to support family, it is prudent to explore your options for money transfer. Though many people transferring money internationally choose to do so through their bank, banks do not necessarily offer the best exchange rate to customers transferring money internationally.

Currency brokers are a good option for someone transferring money, particularly in a post-Brexit United Kingdom. Banks generally charge higher fees and sell currency to their customers at a rate that is higher than the current exchange rate. This price difference is also known as the FX spread. Currency brokers focus primarily on currency, and oftentimes offer a much more favourable exchange rate than banks. They often charge lower transaction fees as well.

Because GBP is expected to be volatile as the United Kingdom negotiates leaving the European Union, now, more than ever, a sound currency strategy can help you save money. The GBP is currently at historical low values going back 30 years, and those who receive regular payments in USD or EUR and exchange them for GBP will have less money than they previously did. In order to get the best rate possible, it is important to perform due diligence and compare multiple currency providers. Even though the value of the pound may have fallen by a number of percentage points since the Brexit vote, you can still claw some of these percentage points back using a broker as opposed to bank. For example, according to FXcompared Intelligence’s data, even with the pound’s volatility taken into account, you can still expect to see an average savings of €350.85 when transferring 10,000 GBP to Spain, versus using a traditional bank transfer.

To learn more and to find the best options for you - use our comparison tool, which compares various rates, fees and costs depending on the amount of money you need to transfer. Using this tool will help you find the best money transfer rate possible.

Future Money Transfers

Perhaps you know you will be making a large international transfer in the future, but not for several months. How can you ensure you save as much money as possible without spending all of your time monitoring the current exchange rate (spot rate) until it is in your favor? A currency specialist can also assist with this, by offering a variety of currency hedging products.

Maybe you have been planning to purchase a villa in Tuscany for the last six months. You examine your budget, and even with the weaker pound, the villa is still affordable for you. How can you ensure that you minimize your costs and loss in the exchange from GBP to Euros, particularly in a volatile market?

When dealing with a volatile currency, which the post Brexit pound is, simply monitoring the current exchange rate, or the spot rate, is better than having no currency strategy. However, if you are considering making a future large purchase or will be receiving a large payment that requires either buying or selling GBP, you may want to consider developing a more advanced currency strategy. Many currency brokers offer a variety of hedging products to assist their customers with their currency risk needs.

If you happen to see the GBP take on a favourable rate, but you will not be exchanging money for several months, a currency forward contract might be a good option for you. A currency forward is a private contract made between a buyer and a seller. The buyer agrees to purchase a certain amount of currency from the seller at a previous date for a previously agreed upon exchange rate. The exchange rate is based upon the spot rate at the time and interest, depending on how long the contract is for. You can enter a forward contract for any amount of time, ranging from days to years. The further ahead in time a forward contract is, the higher the price of the forward, as interest is taken into account. Depending on the agreement, post-Brexit forward prices involving GBP may be adjusted to reflect the volatility of GBP.

Due to the volatility of the GBP, you would be expected to have to pay a deposit once you book a forward, perhaps 10% of the value of the total trade and if the pound swings wildy during the period of your forward, you will be likely asked to add to this deposit amount through the period. The more you put down during the period, the less you will have to pay at the end.

Forwards give you an advantage by allowing you to apply a favorable exchange rate to a future purchase. Additionally, and perhaps more appealing in a post-Brexit economy, the buyer knows the exact value of their currency in advance, allowing for more stringent budgeting and more accurate financial projections. While a forward can save you money, the stability and financial planning offered by a forward contract is appealing to those frustrated with the constantly changing exchange rate.

Currency Volatility

The Brexit vote has and will continue to cause the value of GBP to fluctuate as the UK navigates an uncertain future. Every currency is volatile and a variety of factors influence the exchange rate of a currency. Currency will sometimes be relatively stable for a period of time, only to have a sharp drop or increase in value due to a variety of influential factors. Two factors that majorly influence the value of a currency are news announcements that promote uncertainty and the current state of the economy. Brexit is unique, because the announcement of leaving the European Union touches on both of these factors, resulting in the pound becoming highly volatile. If you know you will be exchanging GBP in the near future, it is important to be aware of the performance of the GBP and how its volatility may influence your profit margins or transaction costs.

You can assess and monitor how Brexit has affected the volatility of the GBP today, using our currency volatility tool.