Britain performing better than Euroland
For a couple of months and more the argument here has been that Britain's economy is performing better than the doom mongers claim. While the World Bank and the IMF moaned about long deep recessions, the UK has delivered a steady stream of data which although not top class, was better than the figures coming out of Euroland.
Euros to Pound
Investors eventually cottoned on to this and abandoned their crusade against Sterling. Since mid-March they have drifted back to the Pound, adding 30 US cents to Sterling/Dollar and hauling the Pound up from €1.05 to what looks like a new comfort zone above €1.16. As it did two months ago in the second half of April, Sterling now seems to have gone to sleep. During the second half of June it achieved nothing. Now the international institutions are at it again. The Organisation for Economic Co-operation and Development's latest assessment is that Britain is "deep" in recession and faces a "bleak short-term outlook". A less focused attack from the Bank for International Settlements (BIS) looks for a double-dip recession - a false dawn followed by another setback. The BIS believes that "governments may not have acted quickly enough" to sort out problems with banks' balance sheets. |
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Britain's economy shrinking?
They may have a point. Having been relaxed about a provisional 1.9% shrinkage for the British economy in the first quarter, investors were distressed to see the finalised figure of -2.4. That's almost as bad as the Euroland figure of -2.5% (still subject to revision). Germany at -3.8% makes us look good but that is not the point. Britain's economy performed much less well than everyone had thought. What will the second quarter show?
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Recession out of the way for time being
Provisional data from the National Institute for Economic and Social Research have the economy growing minutely in April and May. It is possible there will be more of the same in June. Yet miniscule growth - we are talking about 0.1% a month - is not much different from recession. It does nothing for dividends or wages or employment. It just means the technicality of "recession" is out of the way for the time being.
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It's a confidence thing
Make no mistake, the Euro zone is not performing any better. Unemployment is higher and production is slowing more quickly there than in Britain. But for three months the Pound has been doing well on the back of its promise. It is a confidence thing and confidence among investors is notoriously fragile. If they decide enough is enough, for whatever reason, Sterling could find itself six euro cents lower in no time flat.
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French property buyers should stick with existing strategy
As it happens, this new mood of caution does nothing to change the strategy already in place for Brits intending to invest in property in France. Nervous or not, Sterling is close to the highest it has been against the Euro since November. It is holding above €1.16 with one eye on the recent €1.19 highs. It could still go higher and many investors' bets are still on the table.
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Buying Euros
We therefore reiterate the suggestion of a month ago: If you have Euros to buy do not miss this opportunity to protect yourself against a renewed fall. Place a stop order somewhere around €1.15 and look for a further rally. (Currency exchange options which save you money.) If it comes you will be able to pick up more Euros for your Pound. If it does not, and if Sterling fades once again, the stop order will be triggered and you will be protected against any greater opportunity cost.
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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