Currency exchange rate
Twelve months ago most Britons would have sneered at a €1.16 Sterling/Euro exchange rate. The Pound was hovering above €1.25 after falling from €1.50 and there was a sensation that the worst was over. In October there was even the threat of a rally and a couple of times Sterling had a look at €1.30. Then the wheels came off. By the middle of December there were plenty of people who wished they had bought Euros at €1.16 and by the end of the month they would have had your arm off to deal at such a price.
Recovery for the Pound?
It has taken a while but we are back "up" there again, knocking on the door of technical resistance that has put a top on the Pound for six months. Why has it taken so long? At the turn of the year there was much gloom about Sterling's future. Unlucky skiers heading to the Alps found themselves getting less than one Euro per Pound at the bureaux de change. It made mountain-top lunches more than usually pricey, around a third more expensive than the previous year. Investors and holidaymakers alike geared themselves up for a sub-€1 Pound. |
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Bleak economic future was on the cards
Of course it had gone too far. A sharp rebound in early January took Sterling/Euro to a more reasonable level and it spent the next five months oscillating between €1.05 and €1.15. But still it could not gather enough support for a proper recovery. Among the analysts, every man and his dog was pointing at Britain's bleak economic future. Massive government borrowing and the collapse of the financial system would, so they said, make Britain's recession ten times worse than everywhere else. There was no statistical evidence for the accusation but neither was there any to point the other way.
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UK outperforming Euro zone
After looking at the last three or four months' figures, that is no longer the case. A direct comparison of the data from Britain and Euroland shows nothing to support the argument that the UK economy is more screwed-up than the Euro zone. That day may come but we are still waiting. In the meantime there is a steady stream of figures to show that in many cases, Britain is actually outperforming Euroland.
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Figures to prove it
The Gross Domestic Product of Britain, the all-embracing measure of how the country is doing as a whole, went down by 1.9% in the first quarter of the year. Yes, that is bad but it is better than the 2.5% contraction in the Euro zone and the 3.8% shrinkage in Germany. Industrial production, similarly, is falling three times more slowly in the UK than in Euroland. Unemployment is still rising in both economies and will continue to do so for several months, but at 7.1% in Britain it is not as horrid as Euroland's 9.2%.
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Currency exchange
Investors have at last fallen in with this reality and they have taken the Pound from €1.05 to €1.16 in less than three months. They have now come to a decision point. Should they sit on their Pounds in anticipation of an upward break or should they take their profits on the move so far?
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Euros to Pound to increase?
It is likely that the pound can progress above €1.16. It will not start to look expensive for a while yet. But if it does not go up promptly there could easily be a setback, perhaps to €1.10. Many would-be buyers of the Euro missed their chance back in February when the pound was at a similar level. They will be keen to avoid making the same mistake this time around and that will mean significant selling pressure. Yet to be seen is whether that will be enough to scare off the buyers.
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Buying Euros
If you are thinking of buying a property in France and have Euros to buy, do not miss this opportunity to protect yourself against a renewed fall. Place a "stop" order somewhere below €1.15, though not too far below and hope 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 activated and you will be protected against any further 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
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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