The currency market is known for its volatility, with exchange rates in constant flux as markets respond to economic and political developments. This volatility has been increasingly pronounced over the last year, as currency traders wrestled with heightened geopolitical uncertainty.
Undeniable focal points include Brexit and a general election in the UK, Italy’s budget spat with the EU and the ongoing fallout caused by the tit-for-tat tariffs between the US and China. All this, plus some shaky economic data from most major economies, has kept investors on their toes.
Looking at the GBP/USD exchange rate, we’ve seen the pairing trade in a range between $1.20 and $1.33 in 2019, with daily swings of up to 2% not uncommon. The GBP/EUR exchange rate has also experienced notable movement over the last 12 months, with the pairing moving
between lows of €1.06 and highs of €1.17. This 11 cent movement would mean the difference of €11,000 on a £100,000 currency transfer.
In 2020 there are plenty of events which could inspire further currency volatility. Much like 2019, Brexit and US-China
trade uncertainty will remain two major motivating factors. Developments in the US-China trade negotiations will be crucial for President Donald Trump as the US election looms.
Monetary policy will also be in focus, with central banks expected to step up their monetary easing in 2020 in response to a slowing global economy, with the Bank of England (BoE) and European Central Bank (ECB) being two banks to keep an eye on. The BoE kept policy unchanged last year as it awaited more clarity on Brexit, but it may be forced to cut rates in 2020 as external and internal pressures grow.
Meanwhile, an increasingly fragile outlook in the Eurozone is likely to keep the pressure on the ECB to introduce an even more accommodative monetary policy, especially as member states remain reluctant to answer the bank’s calls for more fiscal stimulus.
There is also the fear that some of the world’s largest economies may potentially fall into a recession this year, with the US, UK and Germany some of those thought to be at risk. With all this going on, exchange rates are likely to remain erratic throughout 2020.
Such currency movements can have a big impact when moving funds overseas, and can potentially result in an estate being worth less
than expected when repatriated. Fortunately, Title Research currency transfers – powered by TorFX – can help you make you mitigate the risks posed by exchange rate volatility. Using this service gives you access to excellent exchange rates, fee-free transfers and a range of transfer options.
For example, you can use a forward contract to fix an exchange rate up to two years in advance – protecting you from sudden market movements – or target an exchange rate higher than the current market level with a limit order.
Additionally, if you have a target exchange rate in mind, you can use a rate alert. Simply set the rate you want to achieve and you’ll be
notified by text or email if the market moves to that level. If you’re repatriating an estate from overseas, protect your transfer from exchange rate volatility and find out how much you could save.
This article is featured in the winter 2020 edition of the quarterly news digest, Entitlement. Download your free copy of Entitlement for more informative articles and interesting case studies.