Pound/Euro remains near 6 year high

Monday 29th December 2014
Good morning and welcome back to the currency markets after the Christmas break. Given the market holidays there has not been much movement in exchange rates, so today’s report is a reminder how you can take advantage of the commercial exchange rates that we can offer. 

Pound/Euro rate near a 6 year high 

2014 has been a good year for the Pound/Euro exchange rate, and we are currently enjoying exchange rates within a few percent of the best they have been in 6 years. In real terms this means a €250,000.00 property overseas now costs a staggering £20,000.00 less than last summer, purely due to exchange rate movements. The Strong Pound is really driving the overseas property market and there has rarely been a better time in recent years to purchase a property abroad. 

Despite the good Pound/Euro exchange rate however, it has failed to go any higher in recent months. In light of this, it’s an opportune moment to look at the tools and contract types a specialist currency broker can provide, to help save you money when buying overseas. 

If you need the best exchange rates, click here to get a quote a find out more about the services we can offer. 

The tools available to help you take advantage of the best exchange rates 

Using a currency broker as opposed to your bank can save you thousands of Pounds simply by achieving better exchange rates. This is only part of the story however, as a specialist broker has various tools available that can help you take advantage of the current rates even if you don’t need your currency for some time. There are also ways to protect you against adverse exchange rate movements. 

Spot Contract - The Spot Contract is the most basic and commonly used foreign exchange product. It is an agreement to buy or sell one currency in exchange for another. You have 2 days to settle the contract, at a price based on the prevailing "spot exchange rate" (the current value of one currency compared to another.) Although a Spot contract lets you buy or sell currency as you need it, exchange rate movements are highly unpredictable, even during a single trading day. Upon receipt of cleared funds currency is available for onward transmission. This type of contract is typically used for paying an initial deposit for a property, or to top up your account overseas to pay bills. 

Forward Contract - A Forward Contract lets you buy or sell one currency against another, for settlement up to 2 years into the future. Unlike spot contracts, a forward contract eliminates the risk of fluctuating exchange rates by locking in a price today for a transaction that will take place in the future. Most importantly it protects you from unfavourable movements in the market, however, be aware that it will not allow for gains to be made should the exchange rate move in your favour during the period between entering the contract and final settlement for the currency. 

This type of contract is very popular when buying overseas, as usually there is a time period of a few months between paying your deposit and completing your final balance. It allows you to budget as you will know the total GBP cost of your purchase, and protects you against rates falling. For example, you could fix an exchange rate today for £200,000.00 to Euros, and only lodge 10% of the total funds to be converted (£20,000.00) while the majority of your funds remain earning you interest. 

You wouldn’t buy a property in the UK without knowing the final price, and the same should hold true when buying overseas. 

Stop Loss Order - A Stop Loss order protects you against adverse exchange rate movements and secures your currency if it falls below a pre-agreed level. This gives you a safety net and ‘worst case scenario’ and doesn’t leave you exposed to a falling market. This is useful when the exchange rate is rising. For example, the current trading level is 1.25. You place a ‘Stop Loss’ to convert your funds should the rate drop below 1.22. In this way you to take advantage of any gains, without leaving yourself open to unnecessary loss should the market move against you, and you know the absolute minimum you will have to spend. 

Limit Order - A Limit order, which is placed at the top end of the market to secure currency at a specific price that may not be currently available. This type of contract is particularly useful when the markets are moving in a positive direction for you. This type of contract can be using if you are targeting a specific rate, and can be used in conjunction with a Stop Loss order. 

This week’s Market Data 

Monday 29th December – The only data today is Retail Sales from Germany, which are a good overall barometer of the economic health of the EU’s largest economy, so could affect GBP/EUR rates. 

Tuesday 30th December - Very queit, with the only release US Consumer Confidence. 

Wednesday 31st December – Again all US based today, with Jobless Claims, Home Sales, and Inflation numbers. 

Thursday 1st January 2015 – Markets Closed. 

Friday 2nd January 2015 – The first round of economic figures for 2015 include UK Mortgage Approvals and Manufacturing PMI. The EU & US also releases Manufacturing PMI, and we also see construction data from the States. 

Pound/Euro stable, could it be about to drop?

Thursday 21st February 2014
It's been a relatively quiet week, without much volatility since my last post. We did see the Pound weaken slightly yesterday, when the latest unemployment figures were releases. While pretty good overall, the total number of 7.2% was slightly worse than analysts had been expecting, and Sterling fell a little as a result. 

Today however we rates recovered, and at the time of writing GBP/EUR is at 1.2142, and GBP/USD at 1.6655 - both very good buying levels.

In today's post I'm going to have a look at some other events that have happened today that I think could cause the Pound to drop away from the recent highs...

George Osborne warns recovery is 'not secure'

The UK's economic recovery is "not yet secure", Chancellor George Osborne has warned, ahead of next month's Budget. It comes after the Bank of England upgraded its UK growth forecast for 2014 from 2.8% to 3.4%. 

Experts have raised concerns that improvements are too dependent on consumer spending. The Chancellor added that “Britain is not investing enough. Britain is not exporting enough.”

This last point is key, as to export more would ideally mean a weaker Pound to make our goods cheaper overseas. This could mean the Bank of England try to 'talk down' the Pound in order to try to lower exchange rates.

Interest Rates not likely to rise this year 

Martin Weale, an external member of the Monetary Policy Committee (MPC), has today suggested the Bank will not rates this year. "I think it is very helpful if we try and explain that the most likely path for interest rates is that the first rise will come perhaps in the spring of next year,"

The main reason the Pound is so strong at the moment is that many analysts thought the recovery would mean rates rising this year. (Higher interest rates attract investment into a country and therefore strengthen its currency.)

The fact that rates will now be left on hold for some time yet is in my view the reason exchange rates have stopped rising. Coupled with the risk of a devaluation of the Pound to help our exports, mean that the current levels could be a peak. 

If you look at recent charts, you will see that we have got to these levels several times in the last few months, before it drops back away again every time. We haven't seen rates break significantly higher, so the current levels may be the peak.

How can you protect against rates dropping?

It's impossible to predict where the exchange rate will go of course, but if you need to convert Sterling to Euros in the next 12 months, the current rate is near the best in a year. You don't want to lose out on this should we see the market drop away again. 

You can protect against rates moving against you in 2 ways. Firstly, you can lock in today's exchange rates for up to 12 months, and only lodge 10% of the total you want to convert. This protects you against a fall, allows you to budget effectively, safe in the knowledge you're fixing at a 12 month high 

Alternatively if you wanted to gamble on rates improving further, then placing a 'Stop Loss' order allows you to have a safety net in place should your gamble not pay off. This works by placing a lower limit (1.18 for example), and if the market drops to this, we automatically secure your currency. This means you can still take advantage of any gains, but aren't leaving yourself open to ending up with a much worse rate of exchange unnecessarily.

Click here to find out more about Forwards and Stop Orders. 

How to get the best exchange rates. 

These are just 2 examples of the way I can help you with your currency transaction, in addition to proving rates that are extremely competitive - up to 5% better than your bank may offer you. 

If you need to buy or sell any major currency, and would like to find out more about how I can help you, then send me a free no obligation enquiry today. You can find out all the options that are available, and in doing so make an informed choice about what to do.

Don't simply sit back and hope the rate will be good when you need to convert; hope is not a reliable economic tool. It costs nothing to make an enquiry and discuss your currency requirements. I can provide rates for most of the worlds currencies and trade in both directions e.g. GBP/EUR, EUR/GBP etc. If you are buying property abroad, or perhaps an international business that needs to buy or sell currency at the best rate, I can help you.

Click here to make a free enquiry with me today. 

I look forward to hearing from you.

Alastair Archbold