Sterling-based investors and UK expats should take precautions against a volatile pound as it weakens on Brexit concerns, says the CEO of one of the world’s largest independent financial advisory organisations.
deVere Group’s Nigel Green is speaking out after the pound dropped by almost 1 per cent against the dollar to $1.286 and 0.2 per cent against the euro to €1.142 on Monday. It follows growing doubts over whether Prime Minister Theresa May can win parliamentary support for a Brexit deal ahead of a planned summit in Brussels later this month.
It also comes after sterling took a battering on Friday after transport minister Jo Johnson resigned from his post, calling Theresa May’s Brexit deal “a terrible mistake”, and asking for a second referendum.
Mr Green comments: “Sterling is all about Brexit at the moment and we can expect it to be in for a rollercoaster ride due to the increasing uncertainty as deadlines approach and the growing opposition within Theresa May’s own government.
“Nothing has already been priced in, because the possible endings are so different. This is especially true with the Norway option once again being discussed by some Cabinet ministers, despite Mrs May having ruled it out with her red lines.”
He continues: “Sterling is currently priced in a middle ground, reflecting uncertainty on which way Brexit will go, and the outcome will make a significant difference.
“If it is abandoned, or the UK gets a Norway option, it could easily reach the $1.53 it was on the day of the referendum – despite fundamentals such as interest rates and growth favouring the U.S. dollar now more so than in June 2016. This is because currencies often overshoot as well as undershoot when sentiment changes.
“But a hard Brexit – a Canada deal- would result in a weaker sterling, perhaps down to $1.20 or so – levels tested over the last two years when the government has emphasised its red lines.
“A no-deal Brexit, with acrimony between the UK and the EU, would lead to a still worse outlook for growth and so would hurt sterling more.”
The deVere CEO adds: “The pound’s turbulence is perhaps understandably spooking sterling-based investors.
“UK expats are also voicing fears regarding sterling unravelling. Further falls in the pound would result in another big blow for those who receive British pensions or income in pounds as the cost of living would be significantly more expensive in real terms.”
Mr Green concludes: “In terms of investment strategy, if investors are already invested broadly across asset classes, sectors and regions, for instance by having a global multi-asset portfolio, they should sit tight. There is too much uncertainty around Brexit to be able to take strong bets on a region, asset class or even a currency.
“However, if they do not have such a portfolio, but perhaps remain with a strong home bias, then they should take action.
“UK expats should consider reviewing their personal financial strategies. This will help best position them not only to mitigate the risks surrounding Brexit-fuelled uncertainty, but also enable them to take advantage of potential opportunities that may arise.”