Currency fluctuations
Last month you might have experienced the phenomenon of déjà vu, that
strange feeling you sometimes get when you think that you've lived through
something before. Particularly if you were looking at Sterling heading up
towards 1.49 EUR. Having done so several times in the past only to fall back
again, the suspicion at the beginning of September was that it would repeat
the process. It did.
September's currency movements
The last week of September saw the Pound give
back two full cents against the Euro, even though it had managed, slowly and
tediously, to clamber above the magic level. Too many investors with too
many Pounds to sell, or Euros to buy, had decided that enough was enough. It
was not going any further so they piled in to do their business at the
year's high. | |
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No currency certainties
In the aftermath it is not obvious what will happen next. Although Sterling has obviously been unsettled by the experience, the Euro is itself not bomb-proof. Both lost ground against the US Dollar during September. Both have very recently suffered from a reappraisal of what the future might hold for their interest rates. In the space of one week, the “certainty” of a November base rate rise evaporated and the “certainty” of two rate hikes for the Euro this year also disappeared into the ether.
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Pound more attractive than Euro by year end
The new reality should allow the Pound to move into October ahead on points. It has a reliable yield superiority that should leave it at least 1.25 per cent more attractive than the Euro by year end. It has the added tactical advantage of the late September sell-off, which is more likely to retrace than to repeat itself. It is less certain, however, that the Pound will find it easy to move back up to 1.49 EUR high that it has achieved a total of six times in the last twelve months. The closer it gets to that level, the more investors will remind themselves of what has happened repeatedly in the past.
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A caution to French property buyers
Whilst it would be rash to dismiss entirely the possibility of buying Euros at such an elevated level in the near future, a reality check should caution investors not to bet the house, or the holiday house, on being able to do so.
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Currency options for those buying property in France
This situation suggests a couple of alternative strategies. If you have time to spare, in other words, if you do not intend to make your French investment until next summer, place an order to buy Euros at 1.49 EUR. There is every chance that we will see that level again, we just don’t yet know when. (To learn in more detail about the currency options available to you, use this link
Currency exchange options which save you money).
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Currency advice for imminent French property purchases
If your property purchase is due to complete before Christmas and you have already booked your flights, time is rather more of the essence. You could almost flip a coin to decide whether to buy the Euros now, while the Pound is still within a couple of cents of its year’s high, or to hold on for a few weeks and hope for the best. Don’t do that unless you’re the Dice Man. By all means have a word with your currency specialist about placing a stop order to protect you against another Sterling rout but otherwise take the bull by the horns and buy the Euros now. If cash flow is an issue, arrange the transaction for forward settlement so that you do not have to pay away the Sterling until you need the Euros. (Currency
Exchange - Buying Euros at the Best Rates - Your FAQs).
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Take care with currency transactions
But above all, approach your currency transaction with just as much care as you applied to the property purchase. The difference between the best and the worst foreign exchange decision (a high of 1.4950 EUR and a 1.4600 EUR low) for a 200,000 EUR apartment in September was £3,000. If, with the assistance of your currency specialist, you get it right you can finance a fair few carpets and curtains. (
Advantages of using a currency broker or foreign exchange specialist).
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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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