Sterling has rallied this week, hitting €1.14 against the Euro. This is within 1% of the best we’ve seen GBP/EUR in about 18 months, so a great opportunity for client that need to convert Pounds to Euros. The Pound is also up against other major currencies including the USD, AUD, NZD, CAD. In today’s post I’ll look at the reasons why the Pound has risen, and the ways in which you can take advantage of these gains.
Why has the Pound gone up?
There were 2 things yesterday that caused the rate to rise. The first of these was outlined in my colleague Michael’s post yesterday. There were some very positive signals regarding the Brexit negotiations, and it’s looking like maybe a deal can be agreed this month. It comes as the EU made concessions about UK financial Services. It’s often viewed that the UK needs the EU badly, whereas in many areas it’s the other way around.
The UK is a major economy with huge strengths, one of which is the city of London. The EU have finally realised this and made the necessary concessions to ensure that the £350 trillion Pounds that is traded in he city is protected – £41 trillion of this comes from the EU, and if they don’t agree a deal, they will lose out massively. Michel Barnier knows this and that’s why the EU have made concessions.
The other reason the Pound rose were comments from the Bank of England. Earlier this week I outlined the BoE meeting, and while rates were indeed left on hold as expected, the Monetary Policy Committee (MPC) signalled that if a Brexit deal is agreed, they could raise interest rates twice in 2019. The prospect of higher interest rates usually strengthens a currency due to the higher return on offer for investors. This was the case yesterday, and the Pound rose to €1.14 vs the Euro and it’s also back above $1.30 against the US Dollar.
Will the Pound rise further?
This is impossible to know. If a Brexit deal is agreed then there’s every reason to believe that Sterling will strengthen further. If however they kick the can down the road, then these gains are likely to evaporate. If you need to convert Pounds to Euros, then there are a few options you can consider. Simply hoping the rate will get better isn’t recommended.
Ways you can take advantage of this spike
Option 1 – Freeze the rate now with a Forward Contract. This guarantee’s the rate for up to 12 months, protecting you against any drop in the rate. This is a great tool when you need to budget, when purchasing property overseas for example. However if rates improve further, you cannot take advantage and you are stuck with the rate you have fixed.
Option 2 – Use a Stop Loss Order.This is where you instruct us to secure your rate if it drops below a pre-agreed level. e.g. for GBP/EUR you could place a Stop Loss order at 1.12. If the rate does plummet, then you have a worst case scenario and are protected against a sudden adverse movement in the rate. If rates continue to rise though, you can take advantage of the better rate, and even move your Stop Loss level up in line with the market. This is a great option when the rate is moving in your favour.
To discuss our services in more detail, get a quote, or even just have a chat about which way the market is moving, get in touch with us today.