Euros to Pound
As long ago as January the über-speculator George Soros predicted that Sterling's decline had more or less run its course. He said the Pound would "continue to fluctuate" and the last three months have proven him correct. As G20 leaders took their seats in Canning Town, the Pound was changing hands at €1.0975.
Exchange rate comparison
It was not the first time it had been there. In early March, early February, early January and mid-December it had traded at an identical level. The dejá-vu was not restricted to Sterling/Euro: the same thing has been going on elsewhere. Against the Dollar, Sterling has made repeated visits to $1.4550 since the end of last year and was there again in early April. It is the same story with the Yen at ¥143 and the Swiss Franc at SFr 1.6650. Is that spooky or what? |
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Sterling stays afloat
What is surprising to some is the way Sterling has stayed afloat despite the best efforts of doom-mongers everywhere. It would be paranoiac to suggest that the Pound is the world's currency whipping boy but sometimes it feels like that. Even the International Monetary Fund (IMF) has it at the top of its hit-list. Almost every month the IMF updates its assessment of the global recession and every time, like clockwork, Britain's economy comes out as the one most likely to have a deeper and longer recession than everyone else.
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Is the IMF right?
The IMF may indeed turn out to have the correct handle on the situation, but the statistics to date have not supported its case. Look at some of the recent data (and they are not cherry-picked to support this argument):
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Statistics for Britain not looking so bad
Unemployment in the Euro zone is running at 8.5%. In Germany it is 8.6%, in Spain 15.5% and in Britain "only" 6.5%. Consumer confidence in Britain went up last month, in Euroland it went down. British retail sales in the year to February increased, compared to the previous year. They didn't go up by much but they went up. In the Euro zone they went down. The story is less positive for Britain's manufacturing sector. Industrial production fell by 11.4% in the twelve months to January. Nevertheless it fell even further in Euroland, down by 17.4% on the year.
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Historic data
Of course these are all historic data. They show what was happening a couple of months ago not what is happening today, let alone what will happen next month. Things can change quickly. There are also less immediately quantifiable issues involved, such as the matter of government finances and stability. One worry among investors is that the massive stimulus spending by Downing Street cannot be covered by taxation. It will either have to be borrowed or printed. Either way it will reflect on Britain's creditworthiness and there could be a downgrade of its AAA credit rating. However, this has happened already in the Euro zone. Greece, Portugal and Spain lost their triple-A status earlier in the year and have recently been followed by Ireland.
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Sterling bears the brunt of pessimists
Taking all these factors together there is no obviously clear-cut case for Sterling to bear the brunt of the pessimists. Yet still it does, and why? Because for most investors, the Euro is the natural alternative to the US Dollar. When they sell one, they automatically buy the other. They are after all the two biggest currencies on the planet. Although Sterling is still the fourth most active currency in the world, it is often left on the sidelines while the superstars are busy. As well as that, the Pound has a richly-deserved reputation for being accident-prone. If the world's investors are in the mood to give a currency a good kicking, their first thought is to pick on the Pound.
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Results from the manufacturing sector
That situation might need reassessment if the market cannot come up with some more bad news, especially in the light of data released recently. At the beginning of April, as takes place every month, purchasing managers' institutes in Britain, Switzerland, the Euro zone and the United States published the results of their surveys of the manufacturing sector. On a scale of 0-100, where anything below 50 represents a contraction, all were well into the shrinkage zone. For Britain, however, its score of 39.1 was a four-point improvement on the previous month and more than five points better than the Euro zone.
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Rise in house prices
The following morning the Nationwide Building Society reported the first rise in house prices since October 2007. As the Nationwide was quick to point out, it is "too early to talk of house price recovery" but the improvement did look suspiciously like one of the mythical "green shoots of economic recovery" so beloved of politicians.
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Buying Euros
Like house prices, it is too early to talk of a Sterling recovery, if only because there is no evidence of it as yet. Even so, neither is there any immediate evidence to support the notion that sterling is doomed. For those looking to buy property in France, currency exposures on this scale should still be hedged by locking into a fixed exchange rate for 50% of any requirement, but there is no compelling reason to cover more than that unless price certainty is absolutely essential. (Currency exchange options which save you money.)
Additional articles which may be of interest:
Buying Euros
Currency Exchange - Buying Euros at the Best Rates - Your FAQs
Advantages of using a currency broker or foreign exchange specialist
Glossary of terms used in currency exchange
Feedback on currency brokers or foreign exchange dealers
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About the author
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