Friday 28th March 2014
Sterling has risen to €1.2120 against the Euro, before dropping back away this afternoon. In today’s post I’ll look at this weeks figures that have caused the Pound to gain, and run over the tools I can provide to help you achieve the best foreign exchange rates in 2014
Sterling/Euro hits €1.21
The Pound has risen to €1.21 in the last few days, helped along by some very strong Retail Sales figures. Since the Pound/Euro exchange rate had rate dropped below €1.20, it stayed below that level for over a week, hitting resistance every time it threatened to break through. It was the significantly better than forecast Retail Sales figures that finally gave the Pound the push it needed.
Once it had broken through the resistance level, it kept rising over €1.21 briefly, before some less impressive UK figures caused it to drop back again.
Poor deficit and GDP figures halt Sterling’s rise
Figures this morning showed that the UK’s current account deficit was much larger than expected. The deficit in the three months to December was £22.4bn, only marginally lower than the all-time high of £22.8bn recorded in the previous quarter. Economists had expected the UK’s deficit to narrow to about £14bn in the final three months of the year. One analyst described the deficit as “worryingly large”.
The poor figure halted the rise in the value of the Pound, and the fact that UK GDP numbers were less than the previous estimate also caused a slight fall.
What can you do if you need to buy Euros?
The rise in the rate is welcome news, but recently the Bank of England has warned against the Pound gaining much more strength. If I needed Euros, I would look at the current rate and realise it’s within 1% or so of the best it’s been in 15 months. It could go higher of course as it’s impossible to predict, but I think by hanging on you are holding out for an inch, while risking losing a yard.
For this reason I would lock the current attractive levels with a Forward contract, which means you can reserve your exchange rate on the full amount you need to convert, but only lodge 10% of the total now. The remaining 90% is not required until you need your currency. You can lock in the rate for up to 2 years and thereby protect against a drop.
I’m converting Euros to Pounds, what should I do?
Just a few days ago the EUR/GBP rate was the best it’s been all year. Now we’re above €1.20, the resistance level I mentioned in a recent post now becomes a support level. This means it’s unlikely to drop back through €1.20 any time soon.
Some forecasts suggest the Pound will get stronger, although the Bank of England could try to stop it rising much further. That said, the average rate over the last 10 years is €1.30, so it’s actually still quite good. I think it’s going to hold at these levels for a while so I see no value in waiting for rates to drop as they are unlikely to do so.
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