In the near future, it is possible that there will be a ratio of 1:1 for the euro and sterling. Although this has negative consequences for Britons and Europeans whose money won't stretch as far as it previously did; this however, has positive consequences for UK and European eCommerce companies that want to expand their outreach to demographics that are now buying from these companies due to the favourable exchange rates stemming from the lower sterling and euro.
The euro has been steadily rising against the British pound post-Brexit and is following a similar pattern to Jan 2009, and there is a possibility that a near 1:1 ratio of the currencies might be in the foreseeable near future, if the EUR/GBP recaptures the 0.86-0.88 level.
With the Bank of England's plans to cut interest rates within the month, this will further project the possible likelihood that the FTSE will reach new highs into 2017-2018. Mark Carney, the Governor of Bank of England joked that currently we have an "economic Brexit post-traumatic stress disorder."
One of the advantages of a lower sterling is a stronger GDP. With announcements of interest rate cuts and lower corporation taxes, the FTSE has barely blinked an eye and is business-as-usual, potentially moving into new highs by Oct 2017-Feb 2018.
However, despite the sterling taking a steep fall, this will be mainly beneficial for many UK companies and industries, particularly in eCommerce and hospitality. Just as news of Brexit hit, the UK-based Asos site was down due to the heavy volume of traffic it had from customers around the globe who were taking advantage of the lower sterling. South Korean shoppers tweeted, "“Now is the perfect time to shop directly from the UK due to the falling pound, though things may change tomorrow." The sales of European goods were said tohave doubled via the China-based eCommerce site ymaou.com after the U.K. referendum. The steep fall in sterling is attracting more online shoppers to shift from Japanese and Korean products to British ones. In addition, more tourists are projected to flock to the U.K. to shop for luxury items. U.S. shoppers, writers and analysts have dubbed the U.K. referendum, "Brexit Sales!"
It is also up to the next Prime Minister to ensure that the U.K. still has access to the single E.U. market to prevent an interruption of overseas investment and retain its position as the number one destination for foreign direct investment (FDI) in Europe. Currently, the top five nations to invest in the U.K. are the U.S., France, India, China and Japan.
To counteract the potential fallout from businesses that might now be apprehensive about investing into the U.K., in an unprecedented move, Chancellor George Osborne also recently announced plans to cut corporation taxes to less than 15 percent from 20 percent to stimulate Britain's competitive economy.
What does this mean? It means that the lower sterling will potentially raise the overall GDP of Britain. Although it is uncertain for how long the British pound will drop, this is an ideal time for UK eCommerce startups to launch their international marketing strategies and further capture the U.S. and Asian demographics. Despite the next Prime Minister having a lot of burden on her shoulders, London is strategically still the best place to launch a startup.
By Sierra Choi
[Disclaimer: This post is not intended as any FX nor stock market advice and is for educational purposes only.]