|10 March, 2019

'Sterling' performance? Brexit vote to determine direction of UK pound

Industry executives believe that the British currency could gain or lose in the range of 6% on Tuesday

In this photo illustration, £1 coins are seen with the new £10 note on October 13, 2017 in Bath, England.

In this photo illustration, £1 coins are seen with the new £10 note on October 13, 2017 in Bath, England.

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The British pound will witness major volatility in case of a no-Brexit deal on Tuesday, resulting in a big decline in the UK currency's value against the UAE dirham.

The pound is already believed to be overvalued against the dirham as it gained over 4 per cent in the last three months. The pound has risen 7 per cent from 4.57 on December 12, 2018 to 4.9 on February 27. But it lost some of its value on Brexit fears and last closed at 4.78.

In the past one year, the pound hit a high of 5.26 on April 27, 2018 and low of 4.58 on December 12. It lost 6 per cent against the dirham in 2018.


Industry executives believe that the British currency could gain or lose in the range of 6 per cent on Tuesday in case of a 'yes' or 'no' to the British parliament's voting on a UK divorce from the European Union. They advised investors and British nationals in the UAE that hedging is the best option in the current circumstances.

Rajiv Raipancholia, CEO of Orient Exchange, predicted that the pound could fall between 3 to 6 per cent to 4.40 against the dirham as a result of 'no' Brexit.

"With a 'yes' voting for Brexit or extension, the pound could appreciate to 4.85 from the current level of 4.77. There are chances for an appreciation of the currency," said Raipancholia, who is also a treasurer at the Foreign Exchange and Remittance Group in the UAE.

Promoth Manghat, executive director and CEO at Finablr and group CEO at UAE Exchange, said if the deal goes through, the pound could experience as much as a 4 per cent jump against major currencies.

"On the contrary, if the UK lawmakers reject the deal, then we foresee a potential downside with the pound losing over 2 per cent against the greenback. In either case, it's going to be a tumultuous week for the pound," said Manghat.

Antony Jos, executive director at Joyalukkas Exchange, noted that if the British parliament agreed on the Brexit issue then the probability of the pound strengthening in relation to other currencies becomes higher as it would create demand for repatriation of money for both investment and expansion within the UK.

"If it's a yes for Brexit by the British parliament, there might be an opportunity to strike a deal for a free trade agreement with the UAE and GCC and other ease-of-business deals between the two. Also for risk-takers, there will be a good opportunity to hedge their currency risks in the months ahead as the UK reworks all its agreements," said Jos.

The British currency could face volatility when markets reopen today after the weekend and is likely to remain volatile until the Brexit voting. British Foreign Secretary Jeremy Hunt on Sunday warned there were attempts to stop the Brexit process, emphasising that failure could be devastating for the whole country.

Analysts believe that the uncertainty will also affect bilateral investments between the UK and the GCC as well as tourist inflow in to the UAE.

According to Knight Frank's latest report, over 66 per cent of the capital tracked from GCC countries is actively seeking opportunities in UK real estate.

"Whilst a substantial proportion still show a preference for London, over the course of the last cycle we have witnessed more and more investors moving into the regional cities across the UK, searching for more attractive returns," said Taimur Khan, research manager at Knight Frank.

The global real estate consultancy said that there will be more value in the UK due to cheaper pound.

Manghat advised investors to be watchful as any Brexit-related volatility would have a high probability of impacting the global economy.

"If a deal is struck, it would be great news for stocks and other assets in the region. A hard Brexit, on the other hand, could have severe implications for global equities, bonds and foreign exchange. To withstand the possible repercussions, global investors have long been advised to diversify their portfolio to include a mix of domestic and international investments. While a no-deal Brexit would open up a Pandora's box of challenges for the UK, British expats could temporarily benefit from the weakening Pound in terms of getting more value for their remittances," said Manghat.

"We believe that post-Brexit, the UK will be in a better position to negotiate its trade deals with the UAE. The announcement of the $25 billion bilateral trade plan between the UK and UAE, made earlier this year by the UK's International Trade Minister, is also a healthy sign for both economies," he added.

Due to uncertainty about the voting results, Raipancholia advised investors and British residents in the UAE to hedge all positions ahead of the voting as there can be a wide fluctuation in pound in the coming days.

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