Sterling and Euro not moving
To regular readers there will be a strong element of déjà vu about this article. Sterling/Euro has gone nowhere in June, just as it went nowhere in April and May. For three months it has been stranded between €1.24 and €1.28 with only the rarest signs that it wants to go anywhere else. Its average daily price in May was €1.2628 and in June €1.2621. On 1 April it traded at €1.2650 and it traded at precisely the same level on 1 July.
Buying Euro currency
This is not to say that it will go nowhere in July but it looks very much at the moment as though the FX market is satisfied that it has found the right level. For anyone who was thinking last summer of investing in French property but has yet to take the plunge, this is a bit of a shame. Instead of €1.46 they are looking at getting only €1.26 and change. |
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Might Sterling recover?
The prospect of a recovery for Sterling is not impossible to imagine. It has after all been even lower than this, in 1995-96, after which it managed to climb to a peak above €1.75 in just five years. But do not look for a quick fix. The most we can reasonably hope for is a partial retracement of its steep decline, perhaps to the mid-1.30s. And even that is not in prospect at the moment.
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Downward base rate movement will hamper pound
The Pound is hampered, as ever, by investors' suspicion that the next move for base rates will be downwards. It is impossible to be certain of that. Indeed for a brief few days in June the market suspected that Sterling interest rates would have to rise in response to accelerating inflation. Since then the Bank of England, actually the Governor, Mervyn King, has tried to play down such a notion.
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Bank of England not rushing to tighten monetary policy
The Bank's "uncertainty" about what to do for the best suggests it will not be rushing to tighten monetary policy. The reason given is that the current inflation spike will only be temporary. The Bank wants to avoid raising rates in a slowing economy, only to have to slash them later when oil prices peak and inflation goes into reverse.
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Euro interest rates to rise
The European Central Bank (ECB) has a different point of view. With consumer prices in the Euro zone going up at 4% a year and likely to rise even faster, the ECB is taking a rigid stance against inflation. It has given a clear warning that Euro interest rates will have to go up. Investors like that sort of talk. Even though Euro yields are still lower than Sterling yields, investors like to put their money where returns are improving. They also tend to prefer the security offered by a big, liquid "safe" currency like the Euro, to the nervous excitement that goes with sitting on a pile of Sterling.
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Euros to Pound
As long as the outlook for Euro interest rates is upwards and as long as Sterling rates are expected to remain static, the Euro will have the upper hand. This does not necessarily mean further losses for the Pound. It has taken a lot of stick in the last twelve months, and even among speculators, there is a limit as to how far you can punish a currency for previous misdeeds. But the current situation will not make it easy for Sterling to push ahead.
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Buying Euros
Therefore, and still playing the déjà vu card, the following advice is going to look curiously familiar: If you are planning a property purchase in France this summer, the only way to be sure how much it will cost in terms of Sterling is to arrange to buy the Euros now. (Currency exchange options which save you money.) Put down a percentage deposit, pick an appropriate date to settle the transaction, maybe a few months ahead, and agree an exchange rate. It will not be the best Sterling/Euro exchange rate you have ever seen but at least it won't be the worst (Currency Exchange - Buying Euros at the Best Rates - Your FAQs).
Additional articles which may be of interest:
Advantages of using a currency broker or foreign exchange specialist
Feedback on currency brokers or foreign exchange dealers
Glossary of terms used in currency exchange
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About the author
The information in this article has been supplied by the currency broker Moneycorp. For further advice on currency exchange and money markets, call Moneycorp today on +44 (0)20 7589 3000. Alternatively go to www.moneycorp.com where you can open a free, no obligation Trading Facility. Make your money go further!
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