Following England’s national football team to major international tournaments has been painful enough for loyal fans in recent history. This year, however, England fans, along with those of Wales and Northern Ireland, who will all be heading over the channel to France en masse next month to cheer the three participating British teams on are facing up to suffering for their cause in a new way before a ball has even been kicked in anger. As recently as last summer, £1 sterling would have bought you a little over 1.40 EUR at spot rates. You’d currently get around 1.26 EUR for the same £1, making travel to continental Europe around 10% more expensive than a year ago. And with the Brexit vote looming on June 23rd, currency analysts are predicting further slides in GBP/EUR exchange rates in the run up to the referendum.
In separate research notes this week, analysts at both HSBC and UBS have warned that a vote in favour of Brexit would lead to GBP/EUR parity by the end of the year, a slide that would also hit skiers keen to head to the Alps for the winter ski season hard in the pocket. On the more immediate horizon, however, there is a strong likelihood that football fans heading to France in a few weeks that have not already bought their supply of EUR will have to pay more for the same amount of spending power than their better organised friends.
The chances of a positive vote for Brexit are currently estimated to be around 40%, meaning that it is expected that the likelihood is that the UK will remain within the EU. However, that outcome is far enough away from being ensured that currency markets are pricing in the risk of a swing in voter sentiment over the weeks in the run up to the vote leading to Brexit. Financially astute football fans planning to travel have to decide when to buy their EUR. If polls show a shift in favour of Brexit in the next couple of weeks, GBP will almost certainly weaken further against the EUR. However, if sentiment appears to shift further away from Brexit, GBP could claw back some its recent losses against the EUR meaning it may be better for fans to wait.
Those heading to Euro 2016 who are determined to give themselves the best possible chance of the most favourable exchange rates could adopt a hedging strategy. That would mean buying a part of euro budget at present prices while holding back some in reserve in the hope that GBP sees gains between now and their travel date, allowing them to buy their remaining budget more cheaply. Of course, this also exposes them to the risk of further GBP losses over the next few weeks if the current 40% chance of Brexit is held by polls, or increases, generally accepted to be the more likely scenario at present. UBS analyst John Wraith was recently reported by specialist currency site poundsterlinglive.com as stating “..we expect some further weakness of sterling between now and the vote on 23 June.”
Hope for Eurozone Travellers
There are however analysts who believe that the gloomy, from the point of view of British travelers, outlook for the GBP/EUR rate fails to take account of one crucial factor. Barclays analysts have proposed that an eventual Brexit could actually have a more damaging effect on the Eurozone economy than that of the UK. This would lead to the EUR weakening and potentially offset part or all of any weakening of the GBP, meaning that things might be looking somewhat rosier for winter holidaymakers heading to Europe.
Additionally, if the Brexit vote doesn’t go through, which is still the more likely scenario, this is expected to trigger an autumn interest rate rise by the Bank of England. This would be expected to see the GBP regain much or all of its losses against the EUR over the past year.
While neither potential scenario will come in time to reduce the cost of football fans and other tourists heading to Europe this summer, at least those planning to travel to Europe this winter or next summer stand a good chance of benefiting from a better GBP/EUR exchange rate scenario than is currently the case.