Why is £-GBP so Low Against the Euro ?
4 Expat Actions to Save on Currency Exchange
Sam Orgill ProACT Partnership Tax Saving Expat Experts
The EU Brexit Vote has hit British Expats Living and Working in the EU hard. The day after the Brexit vote on 24/6/2016 Sterling started a currency fall that at the start of September 2017 sees the Pound trading at Euro 1.07 to £ 1.00 Sterling – a might fall of nearly 25% in 15 months.
This means UK Expats transferring there Pound sterling to Euro now get 3 apples not 4. The meal out in a Spanish or Cyprus restaurant is a meal for three with someone left at home.
The UK pension payment that converted to Euro 2000 in June 2016 now converts to 1500.
That has a dramatic effect on your spending plans. It’s one less trip back to UK this year, the planned mini cruise postponed until another year.
Why is the £Pound so low against the Euro?
Euro has strengthened in 2017
The French Election this year brought in a tax reforming president that promises to bring a Thatcher like a French revolution to their economy. Coupled with better performance of the 3 main European economies the Euro has rallied on international markets against Dollar and Sterling especially, as well as other currencies.
This movement is further supported by a reduction of EU Central bank ‘QE’ Quantitative easing, whereby the central bank pumps money into the economy to keep interest rates low. This should encourage spending and economic growth. Having judged this a success, the EU central bank has reduced its QE in 2017, leading money markets to anticipate higher interest rates in EU land. This, in turn, makes the Euro a more attractive currency to hold. The Euro currency strengthens.
UK Interest Rates Have Not Risen
Meanwhile in the UK QE is still in force. In August the Bank of England again deferred an increase in UK interest rates, weakening the currency on international money markets.
A lower Pound is good for the UK as it means more tourists attracted by lower exchange rates, and higher exports for cheaper products thanks to weaker sterling exchange rates.
This is about the UK preparing for post Brexit. Global exports are perceived to be needed to replace lost markets in the EU, more important than the inflation that will arrive with it from high import costs. A lower sterling means a UK trading nation is more competitive globally, in the same way the Chinese have built their economy over the last 15 years.
EU Brexit Negotiations Create Political and Economic Uncertainty
The 2017 UK Election weakened the UK position in EU Brexit negotiations. The EU doesn't like people leaving their club and a weak UK government is a target for both tough politics and negotiation tactics on Brexit.
The longer and more publically the EU can draw the Brexit negotiations the more uncertainty politically and economically is generated for the UK and its currency, weakening sterling.
The EU will perceive they can benefit by extracting a higher price from the UK and encouraging other countries not to leave.
4 Expat Actions to Save on Currency Exchange
1. Buy and Pay in GBP
a. Internet shopping allows you to order online and have delivered – even abroad. Is it cheaper than the euro option even with delivery costs?
b. If you are dealing with an international company do they allow you to pay in GBP at a competitive rate
2. Pay by Card
a. Use a GBP based debit card to make a Euro payment. The merchant pays the expense of exchanging money and transferring it to his bank account. You have to be careful with the card used that your bank will not load you with fees – typically called a ‘foreign currency handling fee’. In practice this is unnecessary because the Card company eg VISA do this work – the bank pays GBP to VISA, VISA pay EURO to the merchant seller.
3. Use Currency Exchange
a. The mid-market rate you see on the internet eg Euro 1.07 to GBP 1.00, is not the rate you receive when exchanging the money. The broker, bank, credit card Company all will offer you an ‘exchange rate’. This may be £1 for £1 euro. So you get fewer euros for your pounds. The ‘trading’ difference is the income and profit you are paying that intermediary. Check each transaction you do. Generally using a Currency Exchange broker will give you a better rate than your bank – every time.
4. The budget for the Current exchange Rate always
a. Set your business and family budget on the lowest exchange rate. That way you feel the benefit when the Pound Strengthens and avoid the pain when it falls.
Find out more at our website www.proactpartnership.com
ProACT Partnership Expat Experts offer tax, property, investment and business advice for people living and working and investing abroad. Find out more at our website. We value your feedback, please comment and share on our articles on our website www.proactpartnership.com/blog
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