The value of the British Pound (GBP) has come under massive pressure against other major currencies such as the US Dollar and the Euro in July.
On Monday July 29th, the pound, also known as the Pound Sterling, touched its lowest level in over two years against the US Dollar. This has taken the value of the currency to its lowest level in 28 months.
On Tuesday July 30th, the pound continued to slide on the Foreign Exchange market, taking it to a value of $1.2153 and €1.0905. There were even reports of Sterling being offered at just €0.85 at bureaux de change at major British airports.
Why is this happening?
Back in June of 2016, the United Kingdom (UK) voted to leave the European Union (EU). The UK and EU have been in ‘Brexit’ negotiations ever since.
For the UK to leave, it had to invoke Article 50 of the Lisbon Treaty. Former Prime Minister Theresa May triggered this process on March 29th, 2017 – giving the UK two years to leave. However, the UK has not yet left.
This is because British Parliament voted both against a deal and against no deal with the EU, forcing the UK to ask for more time. The UK is currently scheduled to leave the EU on October 31st.
Still no withdrawal deal has been approved. After her Brexit plans failed again and again, Theresa May was forced to resign as Prime Minister.
Last week, a new British Prime Minister was selected in the form of Boris Johnson. Johnson has said a hard divorce from the EU is on the cards – meaning it is likely the UK will leave the EU with no trade deal.
You may also like to read: Brexit Explained: What Is It And How Will It Affect Businesses?
Why does this matter?
This is a massive time of political uncertainty in the UK. One of the key factors that influences the value of a currency is a country’s political stability and economic performance.
Why? Because a country with less risk for political turmoil is more attractive to foreign investors as it ensures a stable policy regime. An Increase in foreign capital, in turn, leads to an appreciation in the value of its domestic currency.
As mentioned above, the current value of the pound in Euro is around €1.09. The day before the UK voted to leave the EU, the value was almost €1.30! Even after three years of intense deliberations, no one knows what exactly will happen when Brexit does officially happen.
The UK has not had to negotiate a trade deal since it joined back in 1973. Should the UK leave the EU with no deal, which looks increasingly likely with Boris Johnson as Prime Minister, the UK would have to sign 295 trade agreements to retain its current trading relationships.
There is also the Northern Ireland factor. The border between Ireland and Northern Ireland is the only land border between the UK and the EU. Should a hard border be erected, could Northern Ireland see a return of violence akin to ‘the Troubles’?
Both of these political factors signal difficult times ahead for the UK, and are a huge turn-off for foreign investors.
Learn more about what determines FX rates: All You Need To Know About Foreign Exchange
How do you deal with the turbulent UK Pound?
In times of uncertainty, the last thing you want is to send or receive payments to the UK, only to realize that the value has gone the other way by the time money lands into your account. With bank wire transfers taking 3 days or more, there’s no telling how much you may end up paying (or be short in receiving), when the international payment takes a few days from coast to coast.
Using REMITR is the best way to make overseas payments with guaranteed exchange rates and assured delivery times.
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We offer guarantee savings, as we offer the best live exchange rate, no matter what the currency. We charge a flat fee as low as $5, no matter how much money you send. This a tiny fraction of the cost of bank wire transfer fees.
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Time is money – save them both by contacting REMITR today.