What a tumble! If you keep an eye on the foreign exchange market at all, you won’t have helped but notice that the pound to euro exchange rate has plummeted in the last 5 months, from 1.43 at the start of November, to 1.26 today in mid-April. Why? Well, it’s because of David Cameron’s decision to hold a referendum about the UK’s membership of the European Union, due on June 23rd.
This has opened up the possibility that the UK could abandon the world’s largest economic bloc, plunging the UK into the unknown, and thus weighing both on British business sentiment, and sterling.
However, the good news is that what’s down today doesn’t necessarily have to stay down. Sterling could bounce back versus the common currency in the coming months, if the UK votes to stay in the EU, and British business sentiment revives as a result. And of course, this would considerably cut the cost of buying Costa del Sol property, when you transfer money from the UK to Spain.
With all this in mind, what might happen to the pound to euro exchange rate in 2016, and how will this affect your Costa del Sol property purchase? Let’s take a gander.
- Sterling could rise, if the UK votes to stay in the EU.
The most likely possibility for 2016 is that the pound to euro exchange rate rebounds, as Britons reject Brexit. This is because bookies such as Ladbrokes and William Hill put the odds of the UK going solo at just 1/3. And, with the referendum behind us, it’s fair to assume that the UK economy will perk up again, giving sterling a welcome boost.
- The pound may fly higher, if the Eurozone economy continues to cough and splutter.
Moreover, sterling could also get a leg up, if the currency bloc keeps going nowhere fast. For instance, just today we learnt that Eurozone industrial production dived –0.8% in February, worse than forecast. This suggests that the ECB’s massive stimulus isn’t doing much good, and could weigh on the euro!
- Sterling could decline, if the UK shockingly votes to leave Europe.
Were the UK to favour Brexit, it would be a shock not just for Britain, but the entire global economy, warned the IMF this week. The UK would have to re-negotiate long-established trade relationships, with no guarantee of getting more favourable terms. In brief, Brexit could shove the UK into recession, and sterling may dive heavily.
Fortunately, the most probable outcome is that Britons favour the status quo, and the UK remains in Europe. Were this to happen, it would almost certainly become more affordable to buy a Costa del Sol property, as the pound revives. With this in mind, it’s very worthwhile keeping an eye out for the referendum on June 23rd, both to see the UK’s place in the world, and to watch sterling revive!
By Peter Lavelle at foreign exchange broker Pure FX. www.purefx.co.uk.