Independence day is looming!

Brexit2

No, we are not about to be attacked by a few million aliens, formal proceedings are about to begin for Britain’s exit from the EU. Prime Minister Theresa May will be triggering article 50 tomorrow, which will begin the formal negotiations setting out how Britain will leave the EU and what future relationship we will have with our European neighbours.

It is already looking like a chaotic start to the procedures, Nicola Sturgeon having thrown an early spanner in the works by asking for a new Scottish independence vote before we officially leave the EU in March 2019. Thankfully the Prime minister has slapped her down quickly about that, which means we can all focus on the need for a good deal from the EU and putting on a united front to secure this (not looking that united already are we).

There are going to be lots of important details coming to light which will be affecting markets in a big way. If these details come out during the negotiations then we could see an extremely volatile two years regarding currency movements. With GBP hovering around the €1.15 mark, as it has done since July last year, there’s plenty of room for some sharp movements in the next couple of days. Deutsche Bank came out recently predicting that GBP / EUR will go as low as €1.05 / €1.06 by the end of the year; depending on what the UK and EU manage to thrash out between now and then, that rate is entirely feasible.

Some of the important negotiating areas to watch out for are listed below.

  • Access to the Single Market
  • Customs Union
  • Divorce Settlement
  • Citizen Rights (EU citizens in the UK and vice versa)
  • New Fishing Policies
  • Security

Each of these has several important negotiating points tied with it. For example; if the EU grants us access to the single market and allows London continued passporting rights throughout the EU (this is the ability to provide financial services to all EU countries while only being registered in one EU country), then this will be a big boost to the UK and would be very positive for GBP. If we lose this EU perk, then financial services companies would have to be registered in every EU country that they operate in, which would be a time consuming nightmare and would undoubtedly encourage some firms to move their operations to mainland Europe.

I think you can expect other details to be hashed out quite quickly though, such as the rights of EU citizens and UK nationals abroad. Neither side will want to be seen as using people as bargaining chips, but if this isn’t confirmed early then a lot of people will be very nervous regarding their current status and some could end up returning to their home country to avoid the uncertainty. There are 3.2 million EU citizens in the UK and an estimated 1.3 million UK citizens across the EU, so unless an agreement is reached early, a huge amount of people will be affected by this.

Overall it is going to be a very tricky affair and lots of people believe it will take a lot longer than two years to come to an agreement. If this is the case then the UK will have to fall back on World Trade Organisation (WTO) rules, which would mean tariffs on exports to the EU of 15% on food, 10% on cars and 36% on diary products. Now the UK could agree to drop tariffs on all of these, but under WTO rules, we would have to do that with every country we trade with which would be very costly.

If by some miracle we do manage to get a free trade agreement sorted with the EU in the next two years, then I for one am optimistic that UK PLC will have a bright future outside the EU. This will all depend on how quickly we can sign free trade agreements with other countries and whether our financial services sector will continue to boom after independence day.

In the short term, you can expect GBP to be on a downhill slope until some good news comes out of the negotiations. Tomorrow once article 50 is triggered you may see Sterling take a quick dip before recovering later, from the current weakness in GBP it looks like initial uncertainty is already priced in. Once the negotiations get underway though, the slightest bit of news could cause sharp dips or boosts in the value of the pound.

Travel Money and Currency Transfer Options for you:

  • If you need to transfer money, then look at securing a forward contract to avoid all this uncertainty. You can fix your exchange rate for up to two years which will protect you against the negotiating period. Visit Currency Pal to view providers who can offer this.
  • If you are going on holiday soon then you might want to look at loading your prepaid card sooner rather than later (if you have one, if you don’t – get one!). FAIRFX are currently offering €1.1290

 

Independence Day 2
Brexit is not the only thing that has the markets in jitters, on the 23rd April the French Presidential elections will begin. This has the potential to send a Trump sized earthquake through the EU, with bigger ramifications than Brexit. France is one of the most important EU countries and has been at the center of the EU (alongside Germany) since it’s creation. In recent years however, a large portion of French society has rebelled against the EU and wants to join the Brexit Brits in Frexit. Unless you have been hiding under a rock for the last 10 years then you will know that this movement is led by a certain Marine Le Pen.

Marine Le Pen is the hot favourite to win the first round of the elections, however once it gets into the second round of voting (unless she gets over half of the vote) then Emmanuel Marcon is tipped to be the next French President. An honorable mention should go to Francois Fillon, however, due to the allegations that he used public money to pay his family for work they never did, this has done irreparable harm to his campaign and he is expected to poll no more that 15% of the vote.

This leaves Emmanuel Marcon and Marine Le Pen in the final round. Emmanuel Marcon is pro-immigration, committed pro-European and former investment banker with Rothschilds; while Le Pen is anti EU, anti immigration and the leader of the Front National which has a deep history of racism and anti immigration sentiment. Although she has tried to shake off these labels in recent history (to a certain extent), lots of people still see the Front National as a backward organisation which doesn’t fit in modern day society. If Le Pen does get into power, France will have an EU referendum and will also look at leaving the Euro. With Marcon, the one thing that might alarm a lot of people this side of the channel is that he seems to be very against any bespoke deal for the UK regarding post Brexit trade with the EU, especially regarding financial services.

Whatever happens with the first round of voting, almost everyone agrees that Le Pen will get to the second round; however the combined forces of all those rejecting her politics, be they socialists or moderate conservatives, will vote for the alternate candidate in order to keep her from the Élysée Palace. At this point though, the world is getting ready for an Emmanuel Marcon Presidency.

Turbulent times are clearly ahead for Europe and the UK. This next month is going to be an especially rocky one in the world of currency; so if this affects you, keep up to date with your news and look to hedge against the big movements which are undoubtedly around the corner.


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