Article 50 and the Pound: Is your business risk averse?

Brexit has caused a massive drop in sterling’s exchange rate. Is the bell finally ringing for the Pound? We’re set to see on Wednesday 29 March. Whether you are making international payments or sending money to friends and family, you need to act now.

The consequences of Brexit

It’s a big week for the UK. The long-awaited Brexit week is finally here! Theresa May will write to Donald Tusk, EU President on Wednesday which allow the official negotiations of Brexit begin. UK Prime Minister Theresa May will also be addressing the Parliament on Wednesday. It is a crucial and busy week for Mrs. May as she heads to Scotland today for a key speech with First Minister, Nicola Sturgeon. It is indeed a challenge for Theresa May as she campaigns to keep Scotland inside the UK as well as starting the ‘divorce’ negotiations which will allow the UK to leave the EU. It will be interesting to see if the UK Prime Minister has any concession in mind to convince Nicola Sturgeon not to hurt the UK and Scottish relationship. Already, the consequences do not look too favourable with the Bank of England claiming that Brexit could be a major risk for UK’s economy.

One thing is for sure, import prices will see an increase with new laws and restrictions implemented after the UK government triggers Article 50. Before, there would be no need of an import licence to import certain goods in the UK.  However, changes are bound to happen now and you can expect that imports will cost more. Whether or not the UK obtains better trade deals with non-EU countries is another question?

Another consequence is the impact on households’ income. A report carried out by Fiscal Studies suggested that ‘’every household will lose £1,250 a year because of Brexit.’’ However, on a brighter note, since the UK voted to leave the European Union, UK companies have seen a rise in international sales. Further to that, another report published by Paypal showed that SMEs in the UK saw international Paypal sales treble due to depreciation in the value of the Pound. ‘’Lower prices played a major part in boosting international sales, but there were many other contributing factors,’’ says Mr. Brant, managing director at Paypal UK.

The death of the Pound

Imagine the predictions of the banks and research institutions turn out to be true, sterling could yet witness another flash crash. Deutsche Bank predicted sterling will drop to $1.14 once Article 50 is triggered. A cheap pound will affect your business if you regularly send money abroad to international suppliers. One obvious solution is to hedge and protect your businesses bottom-line if you have any international payments queued up. But don’t just act spontaneously, do your homework, find a company that works for your business with your business to provide you with a top-notch service when it comes to your international payments. And we never know, it might just be a start to something wonderful for both of us.

That said, the Pound seemed to recover over the last few days; the Pound had its bad days when the UK voted for a referendum, we all know that. The Pound also had a huge sell-off when Theresa May announced that she is negotiating for a ‘hard’ Brexit. However, things seem to have taken an interesting turn, when Mrs. May announced that Article 50 will be triggered on 29 March. The pound, then, was stable. Most certainly, this was not expected. On the day, it was down by a few pips but there was nothing disruptive during the trading hours. Are the markets used to the fact that Brexit is happening? Will there be any more bombs dropped now? Possibly not! But, volatility is still expected going forward especially when we have politics in play.

There is a lot of scepticism in the markets but things do not seem to be too detrimental, as many analysts think that the European Union is a sinking ship, and the UK’s economy will boom after the ‘divorce.’ And undoubtedly, a healthy economy enjoys an appreciating currency. Will the Pound appreciate or depreciate once the formal process of Brexit begins – that’s the show everyone is waiting for! You must be worried about your international payments after hearing all the noise in the markets. That doesn’t mean you need to stand still, you could implement a hedging strategy to cover yourself against the uncertainty in the markets. For example, you need to send £100,000 to your international supplier, you can choose to do a market order which allows you to select a desirable price which will be automatically filled once the price is reached.

Read more: What does Brexit Mean for UK Businesses?

What analysts foresee for the Pound?

Brexit hasn’t happened yet-but the Pound has already felt the pain. The Deutsche Bank foresees that ‘’Sterling is pricing a relatively benign Brexit and could absorb more negative news, ‘’ while analysts at Barclays see the rise of a positive pound. “We expect the triggering of Article 50 to initiate a ‘sell the rumour, buy the fact’ rebound in GBP from historic undervaluation as ambiguity over Brexit recedes,” says Marvin Barth, a foreign exchange analyst with Barclays bank in London.

Our Traders at Indigo FX see a stable Pound over the coming days; ‘’It will be interesting to observe the market reaction to the triggering of Article 50, but we do not expect much of a downside move when the announcement comes, because it is expected and priced in.’’ Further to that our traders think, ‘’given the large short positions investors have in GBPUSD, we may see a short squeeze – a sharp move higher driven by investors being forced to buy back their positions.’’ This move could propel the currency to February’s highs which would be a great opportunity to put business hedges in place for the coming months ahead.

Are you sending money abroad on a regular basis-then make no mistake about it! The best thing to do now to ensure you do not lose out on your international payments is to seek expert guidance from a foreign exchange specialist.