Unstable political effects on world currencies

Unstable political situations are becoming the norm rather than the exception in the 21st century, and there’s no sign at present of their becoming any less extreme.

The average British expat may or may not have any idea how political events affect world currencies, but might do well to get to grips with the fact that financial plans may need to alter when currency instability occurs. Unfortunately for many expats living on fixed monthly accounts, this is the perfect time to factor in the unusually politically unstable times they’re living through.

Brexit, Trump, North Korea, Iran, the looming Middle East crisis and even this year’s devastatingly unusual series of hurricanes have all contributed to currency instability. Brexit is the perfect example as, immediately after the referendum result was announced, sterling lost 20 per cent of its value due to negative projections and hasn’t yet recovered. This huge shift is rare in currency markets, but gives a perfect illustration of how politics affects the pound/dollar/ in the expat pocket.

Sterling’s fall won’t have been noticed in everyday UK communities, except by those going on holiday overseas in the near future, but for retired expats living in Europe it meant a swift, steep decline in the value of their UK pensions. However, wealthier expats deciding whether to make a buy-to-let investment in UK property were overjoyed as the exchange rate had shifted in their favour. Sterling is expected to fall further, especially if negotiations fail, hitting even harder on everyday expats, and the expected negative UK economic data won't help.

Across the pond, political disaster affected the US dollar rate after Trump was elected president and decided to take pot-shots at North Korea’s paranoid fear of being invaded by the US army. The currency started its fall even before the USA’s election day, and gold became the investment of the month as it offers comparative stability. Russia’s possible involvement in the election plus Trump’s totally unpredictable behaviour mean the dollar is now fluctuating far more then is normal.

Other unsettling international events included the rise of the far right in the Eurozone, with the focus on the scary French election contested by far right Marine le Pen. Euros were being sold off at a rate of knots until Macron won and the currency recovered. Even stable old New Zealand’s election started a run on its currency, which fell by around six per cent as the government changed to Labour.

For more than a year now, transferring money between countries has been a nightmare for expatriates less than experienced in currency fluctuations, no matter where on the planet they were born. For most, only two alternatives are available, with the first an obsession with political effects on world currencies and the second being to just ‘go with the flow’.