Currency exchange - April
At the beginning of
April the Pound was trading, as near as makes no difference, at its average
price over the last twelve months and at the mid point of its range during
that time. Does that mean that it has not moved in the last year? Oh no.
Sterling has been down to €1.43 and up to €1.53. Since the beginning of the
year the exchange rate has travelled well over twenty cents up and down,
even though the price is unchanged since New Year's eve.
Currency
exchange history
Everything in the currency exchange price
history suggests that Sterling is going nowhere against the Euro. And
everything in the history suggests that Murphy's Law will put Sterling at
its weakest just when you need to buy Euros. In April 2006 it was down at
€1.43. In July it was below €1.44. Last month it was trading below €1.46.
The fact that it hit almost €1.53 at the beginning of January is irrelevant
unless you bought Euros then. |
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All information is treated in strict
confidence (although it will be passed a specialist currency exchange
professional in order to provide you with details
of the best products and rates available). By submitting the form to us you are deemed to have
authorised any such disclosure. |
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Buyers disenchanted with currency exchange
For the first three months of this year the Pound looked progressively more like a basket case. The malaise began as the by-product of its failure to break above €1.53. Disappointed and disenchanted buyers suddenly discovered a myriad of reasons why they should have been sellers all along and pushed Sterling lower to justify their change of heart. (OK, currency exchange dealers are neither as cynical nor as stupid as that but it certainly looked that way at the time.)
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Currency exchange and the “Carry Trade”
A shake-out of the Shanghai stock exchange in early March helped to support the neo-bears' decision. Its effects reverberated around the world and caused investors to make a rapid re-evaluation of their exposure to risk. One of the risks that many faced was that posed by the "carry trade". The carry in question related to low interest rate currencies, typically Yen, being used to carry high yield currencies such as the Kiwi Dollar or the Pound: Borrow the Yen at 0.25%, sell the Yen, buy the Pound, put the Sterling on deposit at 5.25% and pick up an annual 5% profit as long as the Yen keeps on losing value.
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UK interest rate raised
The global equity wobble, coupled with some big problems among low quality US mortgage lenders, prompted many investors and currency exchange dealers to close out their carry positions. To buy back the Yen they had to sell off the high yield currencies in their inventory and Sterling suffered collateral damage. In the second half of March the panic subsided and high yield currencies began to return to favour. Sterling received an added boost in early April when a group of economists known as the Shadow Monetary Policy Committee decided that UK interest rates should be raised at the April MPC meeting.
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Currency exchange advice for French property buyers
Whatever the timing, higher Sterling interest rates should mean a higher Pound against the Euro. Even though Euro interest rates are also likely to go up, UK rates should still be higher and the Pound should be a more attractive investment. Buyers of French property wanting to benefit from currency exchange should be able to buy their Euros more cheaply if they wait for a few weeks or months. Should. That caveat must always be attached to financial market predictions. (Advantages of using a currency broker or foreign exchange specialist.) (Currency Exchange - Buying Euros at the Best Rates - Your FAQs.)
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Use forward transactions when buying your French property
Anyone that needs certainty will not be satisfied with "should". You can't put together a bomb-proof budget based on "should". If you need one when buying your French property, accept today's price and get on with your currency exchange. Buy the Euros forward and know now how many Euros you will get for your Pounds. With a forward transaction you can fix a rate today for a date in the future and the only up-front payment will be a percentage deposit. When that future date arrives, hand over the balance of the Sterling amount and receive the Euros in your account. You will receive a known amount of Euros for a known amount of Sterling. (Currency exchange options which save you money.) There's no "should" about it, so you can buy your French property with a certain amount of peace of mind.
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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, please contact Moneycorp directly using the links below.
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