Michael Vaughan, Co-Founder of Swift FX, which offers a secure and personalised foreign currency exchange service, analyses how the UK general election may impact exchange rates.
As the UK election approaches, the foreign exchange market often experiences significant volatility. Whether you are buying your dream property overseas, have cross border payments through your business, or have overseas investments, understanding the potential impacts of elections can help you navigate these turbulent times more effectively.
In the pre-election period, there are several areas to consider, such as increased volatility, speculative trading and currency weakness/strength.
Markets hate uncertainty, and elections bring plenty of it. Expect higher volatility as the currency market reacts to polls, debates, and news. Traders also often speculate on potential outcomes, which can lead to unpredictable price movements. Staying in touch with your broker is imperative to navigate volatile periods in the currency market.
Depending on the candidates’ policies and market sentiment, the pound might weaken or strengthen, so watch for shifts in economic policies that could impact inflation, interest rates, and overall economic stability.
Come the post-election period, the market’s immediate reaction can be sharp and swift, so be prepared for a possible surge in volatility as the results are digested.
Once the dust settles, the focus shifts to the new administration’s policies. Trade agreements, fiscal policies and geopolitical stances will all influence currency values.
Following the 2019 General Election, pre and post movements were quite substantial with the pound vs dollar ranging from a high/low of 1.3330/1.2860 (a movement of over 3.5%) and the pound vs euro high/low 1.1920/1.1690 or a 2.5% movement.
In real terms, on a £300k money transfer to US dollars, this equates to a difference of $14,200 between the high and low. Using the same volume against the euro, this equates to a high/low difference of €7,000.
For more information about Swift FX, visit https://swiftfx.co.uk
