Brexit and Sterling
Brexit affects holidays as well as business. As we approach the summer months, are you going on holiday to Europe? Bring more spending money as Morgan Stanley has predicted the pound will be on parity with the euro. Sterling is trading at €1.09 after collapsing from €1.31 on the day before the UK voted to quit the European Union in June 2016. As a result many families have decided to stay in the UK come rain or shine.
Morgan Stanley believes the dilapidated British currency has further to fall, and is pencilling in pound-euro parity in the first three months of next year, when £1.02 will buy just €1.
It would signal the first time in its 18-year history the euro has reached parity with sterling.
Why has Morgan Stanley downgraded the Sterling / EUR?
There are two reasons both linked to Brexit – the Euro is strengthening and the Sterling is weakening. The EUR will stay strong as pension funds and insurance companies (such as those in Switzerland and Japan) start to increase their net EUR currency exposure from historically low levels. By contrast the Sterling is weakening because the UK is in a transitional period with the Brexit negotiations creating uncertainly. Uncertainly can cause UK consumer spending to slow down and reduce economic growth.
Putting all the above together, Morgan Stanley forecast that because of Brexit, the Pound to Euro exchange rate at 1.02 at year-end, 0.98 by end-March 2018 and back to 1.02 by mid-2018.
The Pound to Dollar rate is forecast at 1.24 by year-end 2017, 1.23 by end-March 2018 and 1.23 by mid-2018.
Also getting an upgrade is the EUR/USD exchange rate which is now seeing up at 1.25 by the end of March 2018 with the end-2017 forecast residing at 1.22. However by mid-2018 the Euro will have faded back to 1.21.
The article is merely provided as guidance and does not constitute legal or financial advice. We do have specialist Brexit lawyers – feel free to contact us on 0750 802 8899.
Want to know more about how Brexit might impact your business? Buy the book “Doing Business After Brexit” here.