How Britons in the UAE are cashing in on the pound's plunge

Sterling's woes have handed a significant pay rise to residents in the Emirates converting their dollar-linked dirhams into the UK currency

Dubai, United Arab Emirates - August 07, 2019: Daryl Hulse and husband Daumantas Grigaravicius says the current dip in the pound is a Òfantastic buying opportunityÓ for those holding US dollars or AED dirhams who need to buy sterling, either for a future retirement in the UK, or to pay down a mortgage or other debts back home. Wednesday the 7th of August 2019. DIFC, Dubai. Chris Whiteoak / The National
Will the pound fall to parity with the dollar?

The idea of pound parity now seems less far-fetched as the risk grows that Britain may split away from the European Union without a deal.

Rupert Harrison, a fund manager at BlackRock, sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 (Dh3.67) on such an outcome. That isn’t the majority view yet – a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.

New Prime Minister Boris Johnson has repeatedly said that Britain will leave the EU on the October 31 deadline with or without an agreement, fuelling concern the nation is headed for a disorderly departure and fanning pessimism toward the pound. Sterling has fallen more than 7 per cent in the past three months, the worst performance among major developed-market currencies.

“The pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Mr Harrison, who manages more than $10 billion in assets at BlackRock. “We will see this game of chicken continue through August and that’s likely negative for sterling,” he said about the deadlocked Brexit talks.

The pound fell 0.8 per cent to $1.2033 on Friday, its weakest closing level since the 1980s, after a report on the second quarter showed the UK economy shrank for the first time in six years. The data means it is likely the Bank of England will cut interest rates, according to Mizuho Bank.

The BOE said in November that the currency could fall even below $1 in an analysis on possible worst-case Brexit scenarios. Options-based calculations showed around a 6.4 per cent chance of pound-dollar parity in the next one year, markedly higher than 0.2 per cent in early March when prospects of a no-deal outcome were seemingly off the table.

Bloomberg

The plunge in the pound since Boris Johnson was appointed British Prime Minister may be bad news for the UK, but it is good news for many in the UAE.

Sterling’s troubles have effectively handed a pay rise to British residents living in the Emirates and others with financial links to the UK, as their US dollar-linked dirhams are now worth much more when converted back into pounds.

Many are rushing to take advantage of this opportunity but some are wondering if they should hold off in case sterling has further to fall.

Briton Daumantas Grigaravicius, 29, has had a pay rise of 13 per cent in sterling terms since relocating to Dubai early last year.

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This is an opportune moment for both British expats and globetrotters with multi-currency prepaid travel cards, who can lock into today's attractive rates.

At the time, Mr Grigaravicius negotiated his salary at a fixed exchange rate of £1 to Dh5.07, which meant that each Dh10,000 he earns was worth around £1,972.

At time of writing, with £1 at Dh4.42, Dh10,000 would be worth around £2,261 before charges, giving him an extra £289.

Other expatriates arriving from the UK may be even luckier. “Those who arrived before the EU referendum in June 2016 when rates topped Dh6 could have had a 20 per cent pay rise in sterling terms," says Mr Grigaravicius, who works for Ebury Brokers in Dubai.

Mr Grigaravicius and his wife Daryl Hulse are sending as much as they can afford back home to build up their UK savings and investments for when they finally return to the UK.

Ms Hulse, who works for UAE investment platform Sarwa, a robo-adviser in Dubai International Financial Centre, says always compare different providers' currency rates before making transfers. “They ultimately want your business so don't be afraid to request a better price, or take your business elsewhere.”

Today's exchange rate is hugely attractive but could get even better, she adds. “Until we have Brexit resolution anything could happen.”

Pradeep Kumar, chief executive at currency specialists UAE Exchange and Unimoni, says its UK customer remittances have been rising for some time as Britons cash in on their sliding home currency. “This is an opportune moment for both British expats and globetrotters with multi-currency prepaid travel cards, who can lock into today’s attractive rates.”

Other clients have spotted an opportunity to invest in UK property and other sterling-based assets, and are taking advantage of the low mortgage rates offered both by UAE banks and international lenders, he says.

British residents Fred Wobus and his wife Rachel have been cashing in on sterling weakness, recently sending Dh45,000 to the UK, and receiving more than £10,000. “This is the best we've seen since moving to Abu Dhabi 18 months ago," says Mr Wobus. "We regularly send money from our salaries but this month we sent a bit more than usual.”

The couple is building a deposit to buy a property in Cornwall for when they return to the UK, as well as spending money for holidays home, says Mr Wobus, who works in marine forecasting.

They transfer money using the UAE Exchange loyalty programme Club Exclusive, which gives them prioritised and personal service, and competitive rates.

They also invest in the FTSE Vanguard All-World UCITS ETF (VWRL), via offshore investment platform Interactive Brokers. This version of the fund is denominated in sterling, although in this case there is little or no currency benefit. The ETF invests in a spread of global stocks, half of which are in the US, and Mr Wobus says: “Our payments are immediately converted into US dollars to buy those shares.”

Now could be a good time to buy index-tracking exchange traded funds targeting the UK and denominated in sterling, such as the iShares Core FTSE 100 UCITS ETF or the SPDR FTSE All-Share UCITS ETF.

However, the benefits are reduced because companies listed on the FTSE 100 generate three quarters of their earnings overseas, which are worth more every time sterling falls. So when the pound falls the index rises, evening out the overall effect.

Dubai, United Arab Emirates - October 13, 2016.  Chris Battle ( 46 years old from UK and Commercial Manager ) spearhead the Property Hub Dubai meet up at The Scene.  ( Jeffrey E Biteng / The National )  Editor's Note;  ID 19421 *** Local Caption ***  JB131016-Chris05.jpg

Briton Chris Battle is a rare optimist about the pound, and is sending as much as he can afford to the UK now in case it strengthens. "No-deal Brexit is priced into the exchange rate, so sterling may not fall much further," he says. "If we achieve an orderly exit it is undervalued and should quickly recover.”

Mr Battle owns several buy-to-let properties in England and is investing in UK crowdfunding websites, which offer returns of around 10 per cent a year by lending money to businesses and property developers. “This is far more than I pay in mortgage interest so I hope the money will grow faster and allow me to clear most of my debt in 10 to 15 years,” says Mr Battle.

He acknowledges his plan isn't foolproof as timing the market is always risky. “The pound could fall even lower, so I could miss out on an even better opportunity, although I cannot see that happening from today’s level,” he adds.

Network and operations specialist Paul Young is keen to send all his spare money back to the UK right now to build up savings for his retirement as fast as he can. “I normally send money every month but I don’t want to miss out on today’s favourable rates.”

Mr Young, 49, moved to Dubai in February 2018 after 35 years of working in London. “My wife has stayed in the UK and I plan to retire there in a few years, so current sterling weakness is a particular boon."

When Mr Young first arrived in the UAE, he used a local bank until he discovered he could get better rates and lower charges by using a currency specialist, and chose UK-based Money Mover. “It has saved me thousands of pounds and also offers useful extras such as a real-time rate tracking service,” he says.

Money Mover chief executive Hamish Anderson urges people to compare rates and charges rather than simply using their bank, which may be expensive. "Even if your bank quotes zero commission it may load the exchange rates, sometimes taking up to 4 per cent of your money," he says. "When comparing, always look at the actual currency amounts that you will receive.”

Also check settlement and delivery times, he adds: “How long are the funds going to be in transit? Can you track the transfer or will the transaction enter a black hole until funds mysteriously turn up 10 days later?”

For larger transfers, Mr Anderson advises asking whether you will get a MT103 wire transfer confirmation, which gives you proof of payment and allows you to trace the money if it fails to arrive for any reason.

Consider splitting large payments into several smaller transactions over several days or weeks, Mr Anderson says. “This averages out your exchanges rate, so you are not at the mercy of the prevailing spot rate.”

If you are aiming for a target exchange rate, check whether your provider will alert you when it hits that level. “Otherwise you will be glued to your computer,” he says.

Dubai, United Arab Emirates - August 07, 2019: Daryl Hulse and husband Daumantas Grigaravicius says the current dip in the pound is a Òfantastic buying opportunityÓ for those holding US dollars or AED dirhams who need to buy sterling, either for a future retirement in the UK, or to pay down a mortgage or other debts back home. Wednesday the 7th of August 2019. DIFC, Dubai. Chris Whiteoak / The National

Ms Hulse says while the couple have no intention of returning to the UK yet, they invest into the UK market as part of their investment strategy.

"With UK interest rates held at 0.75 per cent and a current inflation rate of 2 per cent, we have no inclination to send and keep money in a bank account in our home country," she says. "Instead we opt for low-cost index funds, including sterling-denominated exchange traded funds.

"I wouldn't recommend anyone transfers large sums unless they are 100 per cent certain they are going to need pounds in the future, say to retire, or move back to the UK permanently."

Stuart Ritchie, director of wealth advice at AES International, says some may be tempted to delay currency transfers in the hope that sterling will weaken further, rather than accepting the rate where it is.

Timing the market is always dangerous, as future movements are impossible to predict and you are unlikely to find the perfect time to transfer money. “It makes more sense to make regular transfers, rather than holding off,” says Mr Ritchie.

Nobody knows where the exchange rate will go next, so enjoy the current buying spree while it lasts.

Will the pound fall to parity with the dollar?

The idea of pound parity now seems less far-fetched as the risk grows that Britain may split away from the European Union without a deal.

Rupert Harrison, a fund manager at BlackRock, sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 (Dh3.67) on such an outcome. That isn’t the majority view yet – a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.

New Prime Minister Boris Johnson has repeatedly said that Britain will leave the EU on the October 31 deadline with or without an agreement, fuelling concern the nation is headed for a disorderly departure and fanning pessimism toward the pound. Sterling has fallen more than 7 per cent in the past three months, the worst performance among major developed-market currencies.

“The pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Mr Harrison, who manages more than $10 billion in assets at BlackRock. “We will see this game of chicken continue through August and that’s likely negative for sterling,” he said about the deadlocked Brexit talks.

The pound fell 0.8 per cent to $1.2033 on Friday, its weakest closing level since the 1980s, after a report on the second quarter showed the UK economy shrank for the first time in six years. The data means it is likely the Bank of England will cut interest rates, according to Mizuho Bank.

The BOE said in November that the currency could fall even below $1 in an analysis on possible worst-case Brexit scenarios. Options-based calculations showed around a 6.4 per cent chance of pound-dollar parity in the next one year, markedly higher than 0.2 per cent in early March when prospects of a no-deal outcome were seemingly off the table.

Bloomberg

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