HOW THE ELECTION MAY IMPACT YOUR EXCHANGE RATES

THIS IS

Helping you make the right currency decisions with better insight

RISK MANAGEMENT

This presentation is a financial promotion and has been prepared and approved by Western Union International Bank GmbH, UK Branch. The information contained within this presentation does not constitute financial advice or a financial recommendation. The information set out in this presentation is general in nature and has been prepared without taking into account your objectives, financial situation or needs. Western Union Business Solutions is a division of the Western Union Company and provides its Foreign Exchange Options services in the UK through Western Union’s wholly-owned subsidiary, Western Union International Bank GmbH, UK Branch (WUIB).

GE2017 – what you need to knowThe decision taken by UK Prime Minister, Theresa May, to call a snap election on June 08 caught many off guard, but the response in financial markets was positive and Sterling enjoyed a meaningful rally (see chart below). But why exactly did Sterling rally, and what impact will the UK General Election result in June have on the outlook for both currency markets and the Brexit process?

To assist you in understanding the implications of this election, and make more confident decisions about planning your international payments, here is our UK General Election Planning Guide, our GE2017 Scenario Matrix, and the latest market forecasts.

05/2016 09/2016 01/2017 05/2017

$1.48

$1.42

$1.36

$1.30

$1.24

$1.18

Sterling spikes by 2%after PM Theresa May

unexpectedly callsfor a snap election

June 08: GE2017

Will GE2017 act as a positive catalyst, allowing a ‘turn in the trend’ for Sterling and potentially a meaningful appreciation?

Has the election hype simply triggered a short‑term rise in Sterling, meaning that businesses should still expect low exchange rates for much longer?

$1.26-$1.35

$1.20-$1.29

Source: Reuters, WUBS May 11, 2017

UK parliament – the current stateWhy did Theresa May call a snap election?

The Conservative party currently has a small majority of 12 in parliament (331 seats out of 650), meaning that PM May could find it very difficult to pass legislation around Brexit.

Critically, this small majority also increases the risk of MPs vetoing any proposed Brexit deal with the EU ahead of the deadline in March 2019.

According to analysis from Morgan Stanley, about 70% of MPs currently in parliament backed Remain, which can undermine PM May’s negotiating position with the EU.

Currently PM May must rely on support from a so‑called right‑wing section of the Conservative party. They are said to favour a clean break (hard Brexit) from the EU and may refuse a final financial settlement related to any transitional deal.

A previously scheduled UK General Election in 2020 (now expected in 2022) would have meant fighting an election at the same time as implementing any Brexit deal reached in 2019.

Seats in Government – the current state

CONS LAB SNP LIB D OTHER

Winning line: 326 seats

331 (50.9%) 232 (35.7%) 56 (8.6%) 8 (1.2%) 23 (3.5%)

PM May argues that a General Election in 2017 would create a more stable government (bigger majority for the Conservatives) and ultimately a smoother Brexit process with fewer roadblocks in parliament in what will be one of the most complex deals to negotiate in European history.

Issues currently facing PM Theresa May in parliament

Polls suggest landslide win for Conservative Party

Sterling spiked sharply after PM May announced a snap election on April 18 because investors see the Conservative Party strengthening their control both in government and over UK‑EU negotiations. PM May has an opportunity to turn a substantial lead in the polls (see below) into a stronger mandate to govern and implement her vision on Brexit.

FT opinion ‘poll of polls’ GE2017 – Predicted seats in government

Source: Financial Times’ Poll Tracker, May 22 2017Source: Electoral Calculus, Financial Times, WUBS. The seat predictor has been produced with Electoral Calculus using May 22 polling data from Financial Times.

June 08 – predicted outcome

01/2016 05/2016 01/2017 05/201709/2016

ElectionCon 47%

Lab 32%

Lib D 8%Ukip 5%SNP 3%Green 2%

EU referendum Election called50

45

40

35

30

25

20

15

10

5

0

331

232

56

8 1 121

383

186

55

5 0 021

0

100

200

300

400

Cons Lab SNP Lib D UKIP Green Others

Winning threshold is 326 seats

No. of seats

Current

Predicted

Polling error – whilst polls are the best measure of voting intentions, they are not free from error and are no guarantee of the final results.

Important considerations

Tactical voting – polls may be overstating or understating a Conservative majority if people vote tactically on the issue of Brexit, rather than voting for the party of their choice.

Campaign momentum – it is possible that during the campaign and live debates Labour party leader, Jeremy Corbyn, could outperform expectations.

GE2017 SCENARIO MATRIX – by UK Currency Strategist Nawaz Ali (May 22nd, 2017)

Important ConsiderationPolling accuracy is never guaranteed and there could still be a major swing in voter sentiment. This means that there is a possibility of alternative outcomes to the above, such as a Labour party win or a Conservative party coalition. Our central view is that any of these alternative outcomes may initially cause a flare up in political uncertainty in the UK, and a depreciation in Sterling’s value against the US dollar and Euro.

Election Scenario GuideWhat’s clear so far is that financial markets are less concerned about domestic policy, and more concerned with how this election result will impact Brexit negotiations. To help you assess the implications this election could have on Brexit and the outlook for Sterling, here is our GE2017 Scenario Matrix compiled by our analyst team.Please note that the below guide represents our central case scenarios only based on current polls, meaning that we do recognise there are potential outcomes that fall outside of these.

CONSERVATIVES LANDSLIDE WIN

Sterling Reaction (Potential 3-6 month range) $1.26-$1.35

Implications for UK-EU negotiations

Risk of ‘no deal’Probability of a transitional deal

Likely market sentiment Demand for UK assets

Parliamentary Majority 100-150

Brexit implications in parliament

Roadblocks for PM MayConsensus on Brexit deal

Implications for UK-EU negotiations

Risk of ‘no deal’Probability of a transitional deal

CONSERVATIVES MARGINAL WIN

Parliamentary Majority 10-50

Brexit implications in parliament

Roadblocks for PM MayConsensus on Brexit deal

Sterling Reaction (Potential 3-6 month range) $1.20-$1.29

Likely market sentiment Demand for UK assets

Revised Brexit Timetable

Source: WUBS, www.instituteforgovernment.org.uk, www.dw.com, www.bloomberg.com, www.reuters.com

It’s important to remember that although the election result will have important implications for the Brexit process, we are still a long way from understanding what any final UK‑EU deal will look like.

Ahead of us will be protracted ‘chapter‑by‑chapter’ discussions between the UK and the EU on key issues such as free trade, passporting rights for financial services firms, border controls and the customs union. Here is what the next two years could look like.

Article 50 triggered

MAR

MAY-JUNUK‑EU to begin discussions over Brexit divorce bill and citizens rights

JUL-SEPEuropean

Commission will set EU ‘negotiating

red lines’ and may publish the

document

German Federal Elections

SEP

DECInitial UK‑EU

Brexit negotiations expected to

conclude

‘Great Repeal Bill’ introduced in the

UK before passing through parliament

MAY-JUNE

OCTEU’s ‘proposed

deadline’ for final Brexit Deal

Brexit deal needs approval from 20 out of 27 EU members

with 65% of the population

NOV-DEC

Possible Scottish Referendum

JAN-MAR

MARUK exits EU unless all

EU members agree to extend 2‑year negotiating deadline

Possible transitional Brexit

process

MAR 2019-2024

2017

2018

2019

UK General Election

UK‑EU Summit to agree negotiations

process and guidelines

JUN

Six Month Forecasts – latest Sterling predictionsWith still so much uncertainty related to any final Brexit deal in 2019, not to mention the multiple other international factors impacting financial markets, such as US President Donald Trump, exchange rates are almost impossible to predict.

October 2017 predictions

The charts below highlight the divergence in forecasts from some of the world’s largest banks and expert currency analysts. If the GBP/USD exchange rate was trading at $1.32 or $1.20 in six months’ time, have you estimated how these exchange rates would impact your profits?

Source: Bloomberg FX Poll May 2017

The charts below only display predictions from a selection of key currency experts.

For a much more comprehensive report, which includes a total of about 60 predictions for each currency pair along with data on averages and ranges, click here to email us and we will send the currency report back to you.

Important Consideration

We understand how market uncertainty and unpredictable exchange rates mean that many businesses can find it difficult to plan their international payments with confidence. The result is that many can therefore leave themselves and their profits exposed to currency swings. However, planning payments, mitigating currency risk and protecting profits does not have to be complicated.

Speak to us about understanding and implementing our simple four‑step plan using our WU EDGE platform. This currency strategy will enable you to take control and have more certainty about your international payments and currency exposures to ensure your profits are better protected and your cash flow is more predictable.

Do you have a currency strategy?

1. REVIEW YOUR CURRENCY EXPOSURE

The WU® EDGE platform can help you:

• Gain clear visibility of your past/future exposures

• Identify currency risk at a glance

• Simulate volatility and its impact on your profits.

2. DEFINE YOUR BUSINESS GOALS

3 common goals for managing currency volatility:

• Protect profits from negative currency moves

• Participate in favourable currency moves

• Enhance or outperform current exchange rates

3. DEVELOP YOUR HEDGING STRATEGY

We can tailor a strategy for your business:

• Identify budget rate or cost rate

• Understand market opportunities and risks

• Set a minimum hedging threshold

100

75

50

25

0

Minimum Hedge Protection

Floating SPOT (unhedged risk)

1‑3 months 75% hedged

3‑6 months 50% hedged

HOMEPAGE BUSINESS PLANNING HEDGING 101 PRODUCTS

Understanding hedging

4. EXECUTE YOUR PLANChoose the right products for your objectives:

• Forwards – Protect

• Options* – Protect and participate

• SPOT – Immediate trades

• Market Orders – Target or protect preferential rates

HOMEPAGE BUSINESS PLANNING HEDGING 101 PRODUCTS

Choosing the right product

FORWARDS OPTIONS

SPOT MARKET ORDERS

HOMEPAGE BUSINESS PLANNING HEDGING 101 PRODUCTS

What are your business goals?

Protect

Participate

Enhance

50%

30%

20%

* These alternative hedging products allow you to lock in a rate of exchange to protect your profits, and give you the ability to benefit if the market moves in your favour. There are disadvantages to consider such as a slightly less favourable protection rate versus a comparable Forward, but please speak to our hedging experts to understand more about the costs and benefits which can vary with each Options product.

© 2017 Western Union Holdings, Inc. All rights reserved.This brochure is a financial promotion and has been prepared and approved by Western Union International Bank GmbH, UK Branch. The information contained within this brochure does not constitute financial advice or a financial recommendation, is general in nature and has been prepared without taking into account your objectives, financial situation or needs.Western Union Business Solutions is a business unit of the Western Union Company and provides its Foreign Exchange Options services in the UK through Western Union’s wholly-owned subsidiary, Western Union International Bank GmbH, UK Branch (WUIB). WUIB (Branch Address: 12 Appold Street, London, EC2A 2AW) is a branch of Western Union International Bank GmbH (registered in Austria, company number FN256184t, VAT Number ATU61347377, with its registered office at Schubertring 11, 1010 Vienna, Austria), which is licensed by the Austrian Financial Market Authority (Österreichische Finanzmarktaufsicht). WUIB is subject to limited regulation by the UK Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of WUIB’s regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from WUIB on request.This brochure has been prepared solely for informational purposes and does not in any way create any binding obligations on either party. Relations between you and Western Union Business Solutions shall be governed by the applicable terms and conditions. No representations, warranties or conditions of any kind, express or implied, are made in this brochure.

Take action and assess your currency exposure before the

UK election

Currency volatility can have serious repercussions for your international business.

Call us now: 0800 096 1229 Email: enquiriesuk@westernunion.com

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