With growing odds of a no-deal Brexit, the British Pound could be facing trouble along the way. In the second week of November PM May said the Brexit negotiation should intensify to the point of “make or break”, and the outcome of those amplified negotiations will have a great deal of impact on the British Pound’s strength. There is not a definite way of knowing this outcome, and hence, similarly like all other opinion columns relating to currency exchange rate movements, this is merely a speculation based on the information that has been made available in the news over the past 2 and a half years (almost) since the referendum took place.
The Nitty Gritty: Brexit
Although there are additional factors determining the future rates of the popular GBP pairings (GBPEUR, GBPUSD, GBPUSD, GBPAUD) – the outcome of the Brexit negotiations will be the ones making the most impact. We will touch up on other economical events that may have a strong impact during the coming month, but Brexit is king when it comes to Pound Sterling predictions and forecasts.
I believe that the UK is heading for a no-deal Brexit based on several factors. Firstly, government officials, major manufacturers and essentially all newspapers are now obsessed with the possibility. I would not go out on a limb if I’d say that major corporations won’t be warning against something they believe has slim odds of happening. I honestly believe the Chancellor of the Exchequer, Philip Hammond, would not even consider the possibility of a no-deal Brexit if he did not think it is a very viable scenario.
Even PM May herself has not ruled out the option of Britain leaving the EU with no deal. In fact, she has not even vaguely expressed any concern as for a no-deal Scenario and has not ruled it out at all. Her most recent actions which include a citizenship deal with Norway convey her willingness to go through with a “hard Brexit”. With major opposition at home coming from every direction, she may have to go down the no-deal route just to avoid the end of her political career.
It’s one of those cases where it walks like a duck, talks like a duck, and smokes like a gun! No one has explicitly said that there’s a greater chance of a no-deal than a well-organised deal, but no one is going to say that until it happens.
Other Factors to Determine GBP Rates in November
There’s a lot of things happening globally right now. For British citizens the most important exchange rate is the Pound to Euro rate, and it can be greatly impacted on what’s going on with Italy at the moment, together with the retirement of Germany’s Chancellor in 2021. The EU was once an island of stability, but it is no longer that. Spain has its unemployment rates decreased since they peaked in 2014, but it’s still at 15%. Greece is still at 19% and struggling to keep its head above water. Then, you have Italy, whose budget was unapproved by European Commission and its unemployment has been steadily creeping towards 10%. With Germany’s bonds trailing lower after Merkel’s announcement of exiting, the economical outlook is quite gloomy.
With that impact the Pound to Euro rate to a large degree in the coming month? it may be, if Italy continues to show signs of unwillingness to do a home check to get back its economy back on its feet, but that’s unlikely. I predict that there will be nothing that drastic happening in the coming month and the GBPEUR rates will continue move at ranges they have been moving at since the referendum – 1.11 to 1.16 Pound to Euro. That is until a big Brexit announcement will be made.
What about the Pound to US Dollar exchange rate? how will the market react to a strong dollar paired with a major market correction, with President Trump making direct attacks on the Fed’s policy? That kind of volatile environment has a strong potential for a short term impact, if a key event would take place. Such key event could be further decline of at least 15% in stocks, impeachment of the president, or the Democrats surprisingly beating the Republicans on November 6 midterm elections. All of these events are unlikely so I believe the the Pound to Dollar rate will remain steady at about 1.25-.1.27, which is a notch lower than how it has been throughout most of the year (it went as high as 1.42 at some point).
Bank of Australia has recently made some dark and gloomy predictions in regards to the Australian economy, and that had an immediate impact on the Australian Dollar rates, including the GBP to AUD rate. The Pound to Australian Dollar exchange rate hasn’t moved this month, so the threats to economy sort of balance out the increasing no-deal Brexit fears, for now.
The Bottom Line: Pound Sterling Foreign Exchange Predicitions
Since I believe that during November, a no-deal Brexit will be announced these are the Pound exchange rates I predict:
- GBP/EUR exchange rate prediction: currently sits at 1.12-.13 and will be 1.05-1.07. This one is pretty straightforward – no big news on the European front, combined with a hard Brexit.
- GBP/USD exchange rate prediction: currently sits at 1.27-1.28 and will be 1.15-1.17. The general sentiment of a strong dollar trampling over the British Pound, combined with the hard Brexit thesis.
- GBP/AUD exchange rate prediction: currently sits at 1.79-1.80 and will be 1.65-1.67. The general sentiment of a weak Aussie Dollar may help the Pound suffer less losses against it.
- GBP/CHF exchange rate prediction: currently sits at 1.28-1.29 and will be 1.11-1.12. The ever safe Swiss Franc will seem a good place to move Sterling into after the Brexit.
In the longer term, it could be that Paul McGrade from the Guardian is right, and that a no-deal Brexit will simply force the UK to form a deal several years down the line. The impact on British economy will be so dire, that the UK will crawl back on its knees to find a solution. In that case, a deal will be made, but it will understandably be unfavorable.
Is now the timing to move money from Pound to other currencies?
It may be a good time to do that, but by conducting the exchange of money, you will be taking a gamble. If your intention is to speculate, sticking to pairings like the CHFGBP may be a great move with the obvious inherited risk that things may not go down the path I envision they would. If you need to exchange pounds into foreign currency or vice versa, then the safest way to do that is through a Forward Contract. A Forward is essentially a contract to buy or sell certain currency at predetermined rate in the future. These may not be available to you through your bank, so I recommend speaking to a recommended currency exchange company, they would not only able to provide you with Forward Contracts and other hedging tools, they will actually give you better rates thank the bank, and provide free guidance and currency predictions.