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Posted January 14th, 2016 by Charles Purdy

What’s in store for sterling in 2016?

British people looking to purchase property or move overseas in 2016 are advised to remain vigilant and keep a careful eye on the currency markets this year, as a handful of potential political and economic decisions make for a fairly uncertain financial landscape – including:

An EU Referendum and the possibility of the UK leaving the EU
2016 may well be the year that the British people finally cast their votes in the much-awaited European Union (EU) debate (the EU Referendum) – and this is already the most talked about political event of the year. “The possibility of the UK exiting the EU is already causing concern, despite the likelihood of David Cameron agreeing a new deal in favour of remaining an EU Member at the next EU Summit in February,” said Charles Purdy, CEO of Smart Currency Exchange. “Whatever Cameron gets out of this Summit may well decide whether the country goes to the polls in June (as expected by many) or whether the Referendum is delayed until 2017 – meaning this EU Summit is a significant milestone.

“The ongoing uncertainty about when this event will take place and how the results will go may well be a contributing factor to the strength of the euro at the beginning of 2016, and it would be wise to expect continued volatility between the euro and sterling until this situation is clarified.”

The likelihood of a UK interest rate rise
After months of speculation, the US Federal Reserve finally announced its decision to raise interest rates slightly at the end of 2015. The possibility that the Bank of England (BoE) will follow suit will continue to dominate 2016 for the foreseeable future. Charles Purdy continues: “Should the BoE follow the example of the US Federal Reserve, this will certainly affect those looking to purchase property overseas. A rate rise is likely to ensure sterling strengthens against the euro – depending, of course, on any other economic and political factors that occur at the same time. On the flip side, a rate rise is likely to have an effect on those budgeting for a second home, especially if they are re-mortgaging their property to do so – although, of course, we would presume that any hike would be gradual.”

Potential changes in European Monetary Policy
Last year was a big one for the European Central Bank (ECB), with the introduction of their Quantitative Easing (QE) programme in January. The programme was extended by six months in December – to the surprise of the financial markets, who were expecting Mario Draghi, ECB President, to increase the amount of QE Funding. This inability to predict the decisions made by the ECB has a significant effect on the euro, and makes the exchange rates even more volatile.

The upcoming US Presidential election
We would expect the sterling/US dollar rate to fluctuate noticeably as the 58th US Presidential election takes place on Tuesday, November 8th, 2016. This will inevitably affect those considering buying property in Florida, as a popular holiday home destination for many Britons, and those looking to relocate elsewhere in the USA – as we would expect both Republican and Democrat candidates to focus on monetary policy and the maintenance of the world’s largest economy. The possibility of a new Republican president would certainly have a significant effect on the world’s financial markets, and, by association, the exchange rates for major global currencies.

If you have any concerns about the effects of these significant events on your overseas transfers and personal finances, make sure you get in touch with Smart Currency Exchange today.

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