Pound vs Euro at 7 month high. Will it last?

Good Morning. Pound vs Euro climed again yesterday. Sterling didn’t actually strengthen any more, it was simply Euro weakness causing the gains. We’ll cover this in a moment, first a quick snapshot of where Sterling exchange rates stand @ 08:30am 21/01/10:

  • GBP/EUR 1.1509
  • GBP/USD 1.6225
  • GBP/AUD 1.7765
  • GBP/NZD 2.2487
  • GBP/CAD 1.6975
  • GBP/CHF 1.6950
  • GBP/HKD 12.603
  • GBP/JPY 148.59
  • GBP/ZAR 12.177
  • EUR/USD 1.4093
Pound gains
All week we’ve had better than expected UK data which has strengthened the pound. We’ve had better than expected unemployment data, higher inflation than expected, and the Cadbury deal boosting investor confidence. However, the pound actually fell against most currencies yesterday over continued fears over the UK debt levels. The exception was GBP/EUR which climed due to Euro weakness.
Euro Weakness
The Euro weakened over continuing concerns about the Greek economy weigh heavily on the currency. Although Greece has passed measures to reduce its budget deficit dramatically, some analysts believe the country’s financial woes will persist.

The euro rose steadily against the dollar for most of 2009, but recent falls will come as a welcome relief to European exporters. A weaker euro means their products become cheaper for overseas customers. It also benefits anyone buying property in the Eurozone, as a weaker Euro means it is cheaper to purchase, and the net result is GBP/EUR hitting the highest rate in nearly 7 months.

As you can see from the 12 month GBP/EUR chart above, it’s the best we’ve been for some time. You have several options if you need to buy Euros. Of course, you hope rates will continue to climb, but if you take that gamble then you could lose out on all the recent gains.
With an understanding of the risk involved when dealing with Foreign Exchange you are better placed to consider how to best manage that risk. The key ways are as follows:
Do Nothing – This high risk strategy means relying solely upon a spot contract and one won’t know the rate of exchange achievable until the actual point of buying the currency. The volatility and unpredictability of the currency markets makes this strategy high risk and speculative. The markets do move both ways, so it could result in a win (or lose) situation, however it does make budgeting for the future virtually impossible.
Secure a Forward Contract – This will enable you to lock into a rate of exchange the moment you know you have a currency requirement in the future. It will protect you against any market movement, both positive and negative and you will know exactly how much the transaction will cost you. Securing a forward contract with the broker, at higher level of exchange than that agreed with the supplier/purchaser will ensure a profit margin on the exchange rate alone. The benefits extend to being able to calculate budgetary forecasts for at least the term of the Forward contract.
Use Currency Options –The two key tools are a Stop Loss order, which will protect you against adverse exchange rate movements and secure your currency if it falls below a pre-agreed level. The other is a Limit order, which is placed at the top end of the market to secure currency at a specific price that may not be currently available. This type of contract is particularly useful when the markets are moving in a positive direction for you – like they are now.
To discuss these contracts, and to make sure you get the best possible commercial rate, contact us today.
These gains may be short lived as the UK debt level is huge. Don’t just hope things will move your way, as hope is not a reliable economic tool. Take control of the markets, and don’t let the markets take control of you!
When you get in touch, ensure you mention you heard about foremost currency group through our Blog. Simply quote ‘Blog’

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