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Chestertons News 29 March 2017

The impact of Article 50 on currency

Sterling slumped against the Euro and Dollar following the referendum result on the 23rd June 2016 and has been held at these lows ever since. Many people expected the vote for Brexit to cause a slump in house price as well but the reverse has actually happened as the market benefited from the influx of international investors looking to take advantage of the weak pound. Company shares in London's largest property developers and agents have increased in value and we expect to see this continue, if not increase, now that Article 50 has been triggered.

Since the referendum vote for Brexit and the immediate negative move on the value of sterling there have been no comparable market shifts, in fact we have found trading to be stuck in a range, suggesting the markets have had time to price in Brexit and have found their value for now. Based on this, the triggering of Article 50 is likely to have little effect on the value of sterling beyond a small knee-jerk reaction.

Looking further down the road, negotiations on how Britain will leave and any resulting trade deals will have an impact on the currency markets, but it is very difficult to speculate on what will happen as nothing so far has gone according to the script and there is no precedent for a negotiation like this.

What we can confidently say is that for the time being, we expect sterling to remain volatile, with the pound finding itself under pressure, and while this is the case expect to see London continue to be an attraction for foreign investors.

Chestertons FX have seen a steady increase in enquiries as both buyers and sellers look to proactively manage their currency risk, we expect this to continue throughout 2017 following the triggering of Article 50. There has been an increase in clients booking their currency in advance to secure favourable rates for future currency transactions and negate some of the uncertainty surrounding the value of the pound.

At present, global economic factors continue to drive currency markets, with the French elections in particular being closely eyed for those clients with any exposure to the Euro, this is already causing major swings in the value of the Euro, which will continue as the uncertainty surrounding the expected result continues.