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Rosie Murray-West
By
September 12, 2019

Brexit Induced Exchange Rate Volatility Heavily Impacting Customers


brexit-2

Brexit has had an even greater than expected impact on customers buying foreign currency, with providers increasing their mark-ups on more volatile days.


 

Exclusive research from Consumer Intelligence shows that the widest spreads - the difference between the price at which brokers will buy currency and the price at which they will sell it- on the pound versus euro rate over the last three and a half years came in conjunction with Brexit-related events.

The difference between the average rate and that offered by the least competitive brands was also higher on significant days in the Brexit process, meaning that customers who did not shop around for currency received an even worse deal.

On the day Brexit results were announced, the least competitive brand offered an average spread of 14.7%, while at market level average spread was 3.53%, a difference of over 11%.

“Customers buying euros have really suffered since the beginning of the Brexit process, and our study shows that some providers are placing huge mark ups on currency on most volatile trading days. Customers need to be more aware than ever of the prices they are being offered if they are to get the best deal,” Rajeev Aggarwal, head of Banking for Consumer Intelligence, says.


The five most significant events

Our study shows that significant events in the Brexit process resulted in the five most significant monthly depreciations in the pound against the euro over the last three and a half years.

 

Monthly depreciation of the pound versus the euro at significant Brexit events

Brexit results announcement -6.1%
‘Brexit means Brexit’ PM statement -4.55%
Brexit negotiations commencement -2.65%
Withdrawal agreement -1.82%
Article 50 extension -2.19%

 

While the shock Brexit result resulted in the largest depreciation, Theresa May’s statement in October 2016 that ‘Brexit means Brexit’ and that she would trigger Brexit talks also preceded a huge depreciation in the pound.

While later events, such as the commencement of Brexit talks and the Article 50 extension have also prompted weakness and volatility, these two events in 2016 produced the most seismic shocks.

 

Volatility breeds higher mark ups

Consumer Intelligence research also shows that, at times of great volatility over the last three and a half years, the gap between Reuters rates1 and the average rates offered by brands that sell foreign exchange to consumers tends to widen.

The gap between average rates and those offered by the least competitive brands was also wider, suggesting that customers who did not shop around at these volatile times really lost out.

 

Percentage difference between mid-market rate Reuters and average brands at some significant stages

Average over last three and a half years 2.7%
June 2016 (referendum) 2.94%
October 2016 (formal process of leaving EU began) 2.75%
June 2017 (Brexit negotiationsbegin) 2.76%

 

Percentage difference between mid-market rate Reuters and the least competitive brand dates at some significant stages

June 2016 (referendum) 6.15%
October 2016 (formal process of leaving EU began) 6.11%
March 2019 (extension) 6.74%

 

1 In all cases the Reuters rate used was the Bid High rate

The future for the pound

The pound hit a ten year low against the euro in mid-August, partly due to poor economic data. However, it rebounded after MPs voted to take control of Parliament in an attempt to block a No Deal Brexit. This has been helped by stronger economic data this month.

However, continued Brexit negotiations and rumours, including the still-real threat of a No Deal Brexit seem likely to ensure that volatility continues in coming months.

“At the most volatile times, it’s clear that customers are really losing out,” Mr Aggarwal says. “There seems little light at the end of the tunnel for customers who are at the mercy of currency rates.”

 


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