Pound Sterling Turmoil: Losses vs Euro and Dollar Prompt Spike in Money Transfer Market Activity

The plummeting British pound is attributed to signs that Scotland could be headed towards the UK exit door with polls confirming the Yes vote is on course to carry the day.

A look at the foreign exchange markets at the time of publication does show GBP has settled, but uncertainty remains high:

• The pound to euro exchange rate is 0.03 pct lower, 1 GBP to EUR conversion = 1.2548.
• The pound to dollar exchange rate is 0.05 pct higher, 1 GBP to USD conversion = 1.6219.
• The pound to New Zealand dollar exchange rate is 0.56 pct higher, 1 GBP to NZD conversion = 1.9815.
• The pound to Australian dollar exchange rate is 0.01 pct higher, 1 GBP to AUD conversion = 1.7710.
• The pound to Canadian dollar rate is 0.29 pct higher. 1 GBP to CAD conversion = 1.7786.

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As the Pound Falls, Money Transfer Pressures Rise

Foreign exchange brokerage HiFX reports a 67% increase in enquiries and a 35% increase in the volume of currency transfers since the YouGov poll at the weekend put the ‘yes’ campaign ahead in the polls.

The number of clients fixing the exchange rate using a forward contract or Regular Payment Scheme up 51%.

Commenting on the rise in transfers, Mark Bodega, Director at HiFX said:

“Having held off making transfers as they watched the pound steadily rise against many of the world’s currencies, it seems as if the recent polls have focused clients’ minds. In the last two days, enquires from both private individuals and businesses have shot up 67% as Brits around the world look to protect themselves or take advantage of the sterling’s sudden dip”.

As the polls narrow in the Scottish independence debate, banks, investors and economists have been ramping up their warnings about the potential investment and economic impact a break-up of the United Kingdom could have.

Not only does Scotland make up about eight per cent of Britain’s GDP, the SNP’s entire case for independence relies on oil, which means that the new Scottish government could be incredibly aggressive in demanding ownership of oil rights.

Bodega continues:

"The markets hate uncertainty and following the two recent polls, the markets will now be watching every electoral prediction from here on in as it looks like it’s going down to the wire. The pound has regained a lot of ground over the past year, which leaves it vulnerable to sudden market jitters. If the ‘Yes’ vote wins, I wouldn’t be surprised to see a 3% to 5% fall in sterling."

Amid the news that the Unionists have lost further ground to the ‘yes’ campaign, growing numbers of numbers of Brits are thinking about how best to protect themselves from further declines in the pound.

Mark Bodega continues: "Due to the current uncertainty in the currency markets, Brits are worried that if Scotland votes yes, the value of GBP will plummet and so many of our clients are playing it safe and selling GBP now.  We’ve seen a 67% increase in enquiries since the weekend and a 35% growth in the volume of currency being transferred."

"Whilst many of these are simple transfers, unsurprisingly we’ve also seen a 41% increase in the number of buyers hedging their currency purchase through the use of forward contracts. In essence, this means that you can buy the currency now, and pay for it later. We’ve also witnessed a 22% increase in the number of clients locking in the exchange rate for regular transfers such as mortgage payments, pension transfers and salary payments. These clients are looking for protection and peace of mind in case of a storm."

It’s not all bad news.  

As with any exchange rate volatility, what concerns some is seen as an opportunity by others and whilst Brits at home look to protect themselves, US Dollar based clients are seen to be taking advantage.

“Having just seen the pound hit a 10 month low against the dollar it’s no surprise that USD/GBP transactions have also increased, albeit by a more modest 16%” says Bodega.

What next for the British pound?

Whilst no-one can predict the future, the latest poll will only add to the pressure on Sterling and the run up to the vote will certainly be a challenging time for the pound.

Sterling will assume the brunt of the economic fall-out from the ongoing uncertainty on Scotland’s referendum, according to analysts. Equally, sterling will get a bounce if the Unionists do better in the polls.

Mark Bodega continues:

"This in an unprecedented event which makes predicting the result and market reaction impossible. If Scotland does chose to become independent we could expect up to another 3% to be knocked off the value of Sterling.

"However, if Scotland chooses to remain within the Union then the impact on Sterling will depend on how much the no vote has beaten the yes vote by. From 0-5% any Sterling rally will prove short-lived as this may encourage another vote in the not too distant future. 5-10% and Sterling will take comfort and we would expect a relief rally of approximately 2%.

"Over 10% and we could see a rally of approximately 3%. Whatever the result, this equates to some potential volatility in exchange rates. Anybody with an exposure to exchange rates whether they’re a business of private individual should therefore ask themselves whether they can afford to take a gamble on a vote that is currently finely balanced and more importantly, completely out of their control?."