Pound vs Euro at 7 week high.

Good Morning. The pound has risen to a 3 week high against the US Dollar, and a 7 week high against the Euro. UK output was up, housing data was better than expected and the ongoing problems in Greece all helped to boost Sterling rates. At 08:30am this morning exchange rates are as follows:

  • GBP/EUR 1.1437
  • GBP/USD 1.5320
  • GBP/AUD 1.6482
  • GBP/NZD 2.1601
  • GBP/CAD 1.5325
  • GBP/ZAR 11.040
  • GBP/JPY 143.37
  • GBP/CHF 1.6394
  • EUR/USD 1.3393

The Bank of England and European Central banks both left rates on hold yesterday as expected, so this had little impact on rates. Despite its gains against the euro, the pound was unable to gain significantly against the dollar and stayed on the backfoot overall as uncertainty surrounding the outcome of a looming UK election kept the currency under pressure. This is likely to be the case for the remainder of the month, as differing opinion polls give strength or weakness to the pound due to the fears of a hung parliament.

Debt issues are still hanging over and until we have a clearer picture of what the election outcome will be, it will be hard for sterling to gain, especially since polls are showing the election is still in hung parliament territory. Two opinion polls yesterday showed Britain’s ruling Labour Party has gained ground on the main opposition Conservatives, but a third suggested the Conservative Party had extended its lead. Uncertainty in politics is manifesting itself in uncertainty in the currency markets.

Weak Euro
The euro came under broad selling pressure in early European trade due to growing doubts about Greece’s ability to manage its debt problems, and analysts said this was helping to boost sterling exchange rates. The euro has been pressured in recent sessions following a media report Greece wanted to renegotiate a deal reached last month over joint EU-International Monetary Fund aid. Sentiment was further dented by news that Greek banks have asked for permission to access remaining funds from a state support package first agreed in 2008.

Summary
With uncertainty over the election, the pound will likely remain volatile under well after the election. Given the rates are at 7 week highs for the Euro, anyone wishing to take advantage of the rates should consider a Forward contract.

A forward contract eliminates the risk of fluctuating exchange rates by allowing you to lock in an exchange rate today for a transaction that will take place up to 2 years into the future. A 10% deposit is usually payable, with the remaining 90% only due when you actually need your Euros. Most importantly, your exchange rate is guaranteed thus protecting you from unfavourable movements in the market.

However, do be aware that it will not allow for gains to be made should the exchange rate move in your favour during the period between entering the contract and final settlement for the currency.

The main advantage of this type of contract is peace of mind that you are no longer exposed to market movements, and this allows you to budget effectively and know the true cost of an overseas property purchase well in advance. Furthermore, you retain the majority of your Sterling funds allowing you to continue earning interest.

To discuss forward contracts, register an account by clicking on the links below, and we can give you a free consultation on all the options available to you.

Have a great weekend.

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