Exchange rate volatility...what can you do?

Let's face it, the British pound is not going to appreciate to pre BREXIT levels against the euro anytime soon. We are in for the long run, and it could get worse.  

However, let's take heart from a good example, US citizens living in Italy. They saw multi year US Dollar devaluation post 2008 and it is only within the last 2 years that the USD has appreciated against the euro and made life a little easier for them. In the end currency fluctuations are cyclical and whilst they are not pleasant we just have to live with it until its our turn to reap the benefits again.

 

However, for all the Brits suffering from a near 12% drop in the value of their currency since June 23rd, it is worth exploring what you can do to help the situation.

 

A little GBP fluctuation history 

 

When the financial crisis hit in 2008 Sterling dropped to almost parity with the Euro. I remember writing an article around this time, and explained that, in my ‘informed opinion’ parity with the euro was nonsense and 1.25 was a normal level. I was right, but it took until 2012 to prove me right. The rate then dropped to about 1.15 and rose steadily again to approx 1.43 at some point last year, before BREXIT. 

 

So what has gone wrong now? Needless to say that the recent drop in GBP is due to the vote and whether the UK can continue to hold its strong economic trading position with the EU. This remains to be seen.

 
However, we have to manage our lifestyles according to the incomes that we have and if you receive money in GBP the fall will represent a reasonable reduction in purchasing power. GBP has fallen approximately 12% and could get worse.

 

So, here are my 5 points to offset the impact of any fall in exchange? 

1. Can you cut back on your lifestyle? You may need to reduce spending. 

2. Take control of the exchange rate when you can and convert your currency when the rate spikes. 

 
3. If you are not using a currency exchange service to convert your money, then start straight away. The banks will be taking about 4%-5% in fees and exchange rate conversion when you make a direct bank to bank transfer. With a specialist currency exchange service you could pay as little as 1%.  We use Currencies Direct and I can vouch for their slick service. If you would like an introduction, let me know.

 

4. When you perceive the rate to be good. (I consider 1.20/1.25 to be very good in the current circumstances, for what it is worth), then hoard some Euros. 

 

5. You may need to start dipping into those savings. You are not going to be receiving 12% interest on your bank account savings for a long time so you may need to start looking at other ways to invest your savings, which may help to alleviate the problem in the medium to long term.

 

6. It might be time to look at any existing Investments you already have and see if they can be restructured in a better way for you. It might be better to invest with a view to generating some income. You may have a portfolio which you have not reviewed for some time, investment funds or shares which have been lying idle in a draw for years but which you could be generating interest and providing you with an alternative income stream. 

 

Currency fluctuations can affect our lifestyles much more than other fiscal matters. It is important to be aware of what you can do if the exchange rate goes against you in any short, medium or long term period. Hopefully the points above will help.

 

If any of the information above, especially relating to exchange rates, is affecting you and you would like to talk about how to reduce the effects then feel free to get in touch at gareth.horsfall@spectrum-ifa.com or call me on +39 333 6492356