The Pound has fallen against the Euro and US Dollar overnight, as figures showed that Retail Sales were much lower than expected. It’s a further sign that due to rising inflation and rising prices caused by a weaker Pound, consumer spending is starting to slow. In general the positive economic performance of the UK recently is due to consumer spending, and as people tighten the purse strings this may well cause the economy to slow in other areas. There is a risk then that the Pound may have further to fall this year. The chart below shows GBP/USD rates over the last 24 hours:
Will Pound/Euro rates go up or down in the next 3 months?
I am still of the view that later in the year Sterling will recover against the Euro and other major currencies. There are some significant political events in Europe in the coming months such as elections in Holland and France that I think may weaken the Euro, and push GBP/EUR rates higher. If Marine Le Pen wins the presidency that’s likely to weaken the single currency significantly pushing GBP/EUR back towards €1.20.
However, before we get to any of that, in around a month’s time it’s likely that Article 50 will be triggered, starting the proceedings for the UK to leave the EU. This is likely to cause an immediate drop in the value of the Pound.
When should you convert Sterling to Euros?
Getting the best exchange rates in the current climate is going to depend on timing. If you need to buy Euros and have time on your side, then waiting could well mean that you get a better rate. However if you need to secure your currency in the next 3 to 6 months, then there is a risk of a significant drop in GBP/EUR rates due to the reasons I have outlined above. In this scenario it is worth looking at removing the risk by using a ‘Forward contract’ to reserve the rate now and protect against the Pound falling.
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