Looking back at Pound and Euro currency exchange rates
It is time for a change of tack. Probably. In early December it began to look as the Pound was in for more of a thrashing. House prices were looking gloomy. The gloom surrounding Northern Rock was deepening. The Bank of England was offering regular updates on its gloominess. Gloom futures were limit up. The writing on the wall, albeit faint at that stage, said €1.20 was on the cards for Sterling. Almost before the festive turkey had been digested the Pound moved lower and the writing gained a neon intensity. Not only was €1.20 on the cards, it was a done deal.
Economists hedge their bets
Economists seldom make a cast-iron commitment to a target that would involve a 12% move. It might be big and clever but if they get it wrong too often they are looking for a new job. So they say things like "should" and "ought to" and "if". So cast your mind back to the beginning of December when Sterling/Euro was looking at €1.38. If that level had been broken "... we would be looking at a target of €1.20 in the not too distant future. Such a break is not yet out of the question." Prescient words indeed, but wrong. |
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Euro currency immune?
Having fallen by 16% since Northern Rock's bid for nationalisation, the Pound made it to within less than four cents of its €1.20 target and promptly did an about turn. Its decline was punctuated by a series of soft data from the UK economy. It was not only house prices doing the damage. Retail sales slowed. Consumer confidence fell. Investors were happy to believe that the UK economy was going to hell in the same hand basket as the United States, property prices and all. They were equally as happy to believe that the Euro zone was immune to such local difficulties.
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All change for currency exchange rates?
In April things began to change. The Euro zone economy began to show signs of softness. Business confidence started to decline. Inflation appeared to be coming off the boil. The IMF projected that Britain's economy would grow faster than the Euro zone in the next two years. The potentially groundbreaking development came when the Bank of England said in its half yearly Financial Stability Report that "conditions are likely to improve as confidence and risk appetite recover...". Sterling/Euro jumped two cents in 24 hours. Investors seized the excuse to cover some of their short Sterling positions. It might be a sign that sentiment is changing.
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Sterling may have a chance to recoup losses
A change in sentiment will scupper any chance of seeing €1.20 in the near future. If the market decides to get off its case, Sterling will have chance to recoup some of the ground it has lost during the past year. €1.35 would start to look reasonable and €1.40 could not be ruled out (please not the "if", the "would" and the "could").
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Buying Euro currency
There is a decent chance that Sterling-based French property investors will be able to buy Euros at a better price this year (Currency Exchange - Buying Euros at the Best Rates - Your FAQs). In no way is it a guarantee but it is certainly grounds for optimism. Be prepared for Sterling to spike above €1.30. When it does, buy half the Euros you need and look for better levels for the remainder. In the meantime, place a stop order in the mid 1.20s in case the Pound suffers a setback and €1.20 appears on the radar again. (Currency exchange options which save you money.)
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Conditions to improve?
As the Bank says, "conditions are likely to improve as confidence and risk appetite recover..." but their reports are written by economists as well.
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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