A fall for Sterling?
A couple of months ago we began to fear that Sterling could fall as far as €1.20. That fear remains. Many financial market practitioners look at charts for guidance. The chart of price over time offers a graphical representation of what has happened in the past. Patterns repeat themselves. Highs and lows that have occurred before suggest levels that will be obstacles in the future. When Sterling fell beyond €1.38 it represented a major breakthrough on the downside. The next obvious target was €1.20.
Euro market is the next best thing to the Dollar market
That target is still a real possibility. The Euro represents more than a dozen developed economies. Three of them (as well as Britain) are members of G7, the seven largest economies in the world. Next to the US Dollar the Euro is the biggest, the most liquid and the best market for currency players. If you want out of the Dollar, the Euro is the currency of choice. Sterling cannot match up to that status. This is why the Euro was able to plough through psychological resistance at 1.50 Dollars and the Pound could not keep up. |
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Fear of interest rate collapse
Investors look at what is happening to the housing market in the States and they envisage similar miserable developments in Britain. They look at the economic slowdown in the States and they hear the Bank of England making anguished noises about what is happening here. Interest rates in the United States tumble and investors look for a similar collapse in Sterling interest rates. Never mind that it won't happen like that, the fear is enough to keep the buyers away.
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Pound at its lowest level for nine years
And they are staying away. The Pound has touched its lowest levels since the Euro came into being nine years ago. Going further back, looking at the performance of the Pound against the Euro's predecessor, the ECU, Sterling is at its lowest level since the end of 1996. This is not good news and there is no promise that things will get better anytime soon.
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Buying French property with Euros
If you will be spending Euros on French property later this year, you would do well to think now about managing your foreign currency exchange exposure and perhaps employing the services of a currency broker or foreign exchange specialist. (Advantages of using a currency broker or foreign exchange specialist.) Any decline for Sterling means spending more Pounds to buy the same number of Euros. You can be sure that those selling the French property will not be so charitable as to reduce their Euro selling price simply because the Pound has gone down in value.
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Currency exchanges need sorting
Make the buying decision for the property and make the buying decision for the Euros at the same time. As long as you keep the two decisions together you can be sure of how much you will have to spend in Sterling terms. If you leave the financial exchange to chance you may be lucky, Sterling may recover. On recent form, however, you will be unlucky. The Pound has shown an unfortunate propensity to go down, not up.
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Buying Euros in a forward transaction
Buy your Euros "forward" to match the anticipated date of completion on your property purchase. Fix an exchange rate and a date for settlement. Put down a deposit of perhaps 10% and do nothing more until settlement day comes around. Then pay the Sterling balance and receive the Euros in your account. You cannot be sure what will happen to Sterling or the Euro but, with a forward contract to cover your investment, it won't matter. (Currency exchange options which save you money.)
Additional articles which may be of interest:
Currency Exchange - Buying Euros at the Best Rates - Your FAQs
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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