Pound/Euro rates fell briefly into the €1.08’s today, before recovering a little after the UK’s Public Sector Net Borrowing figures were better than expected, showing the UK accounts are now in surplus. While this helped Sterling a little, GBP/EUR rates still remain in the low €1.09’s which is around the lowest it’s been since 2009.
Later this morning there are German and EU sentiment measures that will give GBP/EUR further direction. In general however, it’s a story of rates going lower and lower.
Much of the decline is due to the single currency gaining strength. Later this week there is the Jackson Hole Symposium in the USA, which is a meeting of central bankers. There is some speculation that the ECB president Mario Draghi may make remarks about ending stimulus in the Eurozone, which has been lending the Euro support and making it more expensive to purchase.
Could Pound/Euro rates reach parity?
Some major banks such as HSBC, UBS & Morgan Stanley are all predicting that GBP/EUR will reach parity in 2018, which would be the lowest ever Pound/Euro. The lowest it’s been until now was in late 2009 when rates reached a low of €1.02.
Protecting against the rate falling further
While it’s impossible to know exactly which way rates may move, the forecasts of parity will be alarming for any clients that need to buy Euros in the next 12 months, to purchase property in the Eurozone for example. One way of protecting against a further fall in rates is to freeze the current rate using a ‘Forward Contract’. This is a tool that enables you to guarantee the current rate for up to 2 years. While protecting against a drop in rates, it also allows you to budget effectively and remove your exposure to the volatile foreign exchange markets.