Volatile weeks ahead for foreign exchange rates

Wednesday 6th May 2015
After a tumultuous end to last week for the Sterling/Euro pair, yesterday we saw rates remain within a 1 cent range between 1.3550 and 1.3650. This still represents a large cost difference when buying a large amount of currency, however relative to the huge drop we saw last week, it actually seems quite stable! Regular readers of my blog and those keeping an eye on the currency markets in general will know that the coming few days will be incredibly important for exchange rates. 

In addition to the usual economic data releases that may cause rates to change we have, of course, the UK parliamentary election on Thursday. It is a significant event to determine the appropriate stance of monetary policy and assesses the risks to long term goals of price stability and sustainable economic growth in the UK, and as such, it’s highly likely to affect the Pound. 

In the last week alone, a purchase of €250,000.00 has differed in cost by more than £6,500.00. Similar cost differences over the next week will not be a surprise. Therefore if you need to convert one currency to another this week, you should have a clear plan in place with regards to what you want to achieve, and how you’re going to achieve it. 

Simply sitting back and hoping the exchange rate will move in your direction is not a wise approach, and in today’s report we will have a look at how you can protect yourself against market volatility the election may cause, and look at ways you can protect yourself. 

Click here to get a quote and discuss your currency requirement

UK General Election likely to cause significant market volatility 

Let’s put things in context. Elections always cause uncertainty, and as I’ve mentioned several times in our analysis over the last few weeks, this election result is highly unpredictable. 

At the moment it looks likely a hung parliament will be the result, so not only will the market face volatility this week, the biggest price movements may actually be in the following few weeks while deals are made and the main parties attempt to form a coalition government. 

Financial markets look for stability in order to spur investment and confidence, and the currency markets are no different. Without intending to sound political, and looking at this from a purely analytical point of view, one example would be the prospect of a Labour/SNP deal. In my view the financial markets would not react favourably to that given the effect it may have on business investment and the economy as a whole and so could send the Pound lower. At the moment there is no way to know what government we will have a few weeks from now, so let’s take a sensible look at ways you can protect yourself against market volatility to ensure your currency does not cost more than necessary. 

How to protect yourself against exchange rates moving the wrong way 

The below is a brief outline of the main contract types I can offer. For a full outline of the options you can consider, the first step should be a free consultation, so that you can make an informed decision on what to do. 

Some options you can consider are outline below. They’re not too complicated and these smart ways to trade offer a host of clever advantages depending on your individual situation. For a more detailed look at the options you can consider and to get a quote for your exchange, contact me today. 

Spot contract - The quickest, easiest and most popular way to buy and sell currency – you simply exchange one currency for another, whenever you need it. You have two days to send us the funds and, as soon as your funds clear, we’ll forward the currency to the account of your choice. 

Forward contract - A forward contract can help protect against market volatility, useful for managing your budget. You can set the price now for a transaction that will take place up to two years in the future, allowing you to fix the exact value of the currency to be paid, regardless of market fluctuations. You secure the forward contract with a margin of 10% of the total value of your transaction (you’ll need to pay this within two working days of agreeing the contract) and then pay the balance before the contract expires. Once secured, the agreed exchange rate will apply for the duration of the contract. This is very popular at the moment. 

Limit order - With a limit order you specify the exchange rate you are hoping to achieve – which may not currently be available. Your currency will automatically be purchased if the market exceeds this rate, meaning you get the price you want. This type of contract is particularly useful when the markets are moving in a positive direction for you. 

Stop loss order - A stop loss order instructs your broker to buy if the exchange rate goes down to a pre-determined level. When combined with a limit order, you can hold out for a better rate while protecting yourself from a sudden fall in the market. 

To have your free consultation and have a detailed chat specific to your currency requirements and timescales, contact us today. 

Please note I will be overseas for the next 10 days, so will be back in action on Friday the 15th May, with a full analysis on happened to exchange rates after the election 

Pound/Euro in free-fall, drops into the €1.35's

Friday 1st May 2015 
Well, we've all been saying the Pound/Euro rate was at risk of a serious fall, and that's exactly what we're now seeing. GBP/EUR has absolutely tumbled in the last few days. On Wednesday morning the rate was sitting at a near 8 year high of €1.40, however when I walked onto the trading floor this morning, I was shocked to see the market sitting in the €1.35’s. That’s a drop of more than 3% in just a few days as you can see from the chart below that shows the GBP/EUR rate over the last 2 days: 

Will the Pound keep falling against the Euro? 

The only reason rates were holding at €1.40 was the concern that Greece would not be able to meet its debt repayments. This had been causing real uncertainty over in Europe, and the Euro was very weak. As I outlined in my last post, actually the Eurozone economy is looking much more robust. Their QE programme is taking effect, and it looks like Greece will play ball with the IMF and its creditors. 

Focus has now shifted to the UK election. This uncertainty is starting to weigh on the Pound and is pulling exchange rates down across the board. We may see a recovery after the election, depending how the markets react to whatever coalition is put together, which could take a few weeks to do after polling day. Personally I think it will get worse before it gets better. Hopefully we won’t see a Labour/SNP deal, as without meaning to sound political, I don’t think the financial markets would react favourably to that given the effect it may have on business and the economy as a whole! I expect rates to be as low as €1.30 to €1.33 over the next month before recovering back to around €1.40. 

Do you need to buy Euros in the next 6 months? 

Buying a €250,000.00 property abroad has become more than £5000.00 more expensive in the last few days, really illustrating how quickly things can change in the currency markets. There is no way to predict the market, but what you can do is have a strategy to ensure you don’t get a low rate unnecessarily. 

If I needed Euros within the next 6 to 8 weeks, I would give serious consideration to fixing a rate now. Yes it’s a little lower, but bear in mind in January it was down at 1.25, and actually you’re still doing very well. If I had longer to play with and didn’t need Euros until maybe much later in the year, I would probably hedge my bets and fix a rate on at least 50% of what I needed, allowing me to take advantage of a recovery in the rate should that happen, and reduce my exposure to the market. I can fix commercial rates of exchange for up to 2 years, and clients only need to lodge 10% of the total they want to convert. 

Click here to find out more about the rates I can offer, or to discuss the market and options you can consider. 

Do you need to convert Euros back to Pounds? 

Well the last few days has really helped! You’re getting a much better rate due to the renewed Euro strength. Things may get better for you as the election approaches, but I think in the medium to long term we’ll see things get back to €1.40 and above. 

If I was selling Euros to Pounds, I would probably place a ‘Stop Loss’ order. This is an instruction to lock in a rate if the market starts moving against you and goes through a pre-agreed level. In this way you can still take advantage of any further Sterling weakness, but not leave yourself exposed should the rate snap back to where it has been in the last few weeks. 

Getting the best exchange rates 

The above is just a brief outline of the kind of things I can offer, from market knowledge to help you make an informed decision on when to fix a rate, to sourcing exceptional rates of exchange and a range of contract types to help you make the most of your currency. 

I can source rates of exchange for over 30 currencies, that are up to 5% better than the bank can usually offer. I have worked in the financial services industry for 16 years, with the last 10 specialising in commercial foreign exchange for private and business clients. If you need to exchange currency on a bank to bank basis, then get in touch with me for free to see how I can help you. Whether you’re buying or selling property abroad, want to top up a foreign account, or have business requirements to make or receive payments in foreign currencies, I can help you get the best possible rates. 

GBP/EUR drops to €1.3850 as Euro gains strength. GBP/USD rises.

Wednesday 29th April 2014 
In my last post a week ago, I talked about the Sterling/Euro rate breaking through the €1.40 level. As I predicted, this spike to a near 8 year high was short lived, and today the rate has fallen from 1.40 down to €1.3850 as you can see from the chart below: 

Why has the Pound/Euro rate fallen? 

Simply put, the Eurozone economy is starting to perform well. Euro and German bond yields rose to their highest level in several weeks today, after data showed bank lending has stopped falling, and consumer inflation expectations have risen. As the European economist at RBC Capital Market has said, "Happier days are on the cards”. He added that "The continued improvement in credit supply conditions bodes well for the sustainability of the euro area recovery overall." 

So it seems that the latest figures show that the European Central Bank's (ECB) Quantitative Easing programme is starting to have a good effect, much as stimulus programmes in the UK and USA have done. Also, there has been positive news on Greece. They are expected to present legislation to lenders to show it is serious in making efforts to repay it’s debts, and as a result the Euro has gained strength and become more expensive to buy. 

If you need to buy or sell Euros, would like a quote or to discuss whether the Pound/Euro rate is likely to go up or down in the coming weeks or months, send me a free enquiry today by clicking here. 

Pound/Dollar rates rise to nearly $1.55 

In contrast to the GBP/EUR rate dropping, GBP/USD has risen nicely in the last few weeks, rising from $1.46 to $1.55: 

This is because today figures showed that the US Economy is growing much slower than expected. In turn this means that interest rates aren’t likely to rise as quickly as previously thought, and as a result the US Dollar has lost value and become more expensive to buy. 

Which way will Pound/Euro and Pound/Dollar exchange rates move next? 

While it’s impossible to predict, I think that now the EU economy is looking more robust, focus will turn to the UK election, so we could well see Pound /Euro rates continue to fall. That assumes of course that Greece makes its upcoming €1bn debt repayments. If they don’t, a rise back to €1.40 could be on the cards. 

Pound/Dollar rates on the other hand are likely to keep dropping. I think this spike above $1.50 will be short lived and expect the rate to be back down in the €1.40’s before long. 

Getting the best exchange rates 

If you need to convert £5k+ from one currency to another, then it would be prudent to get in touch with me for a quotation. I can source exceptional rates of exchange for any major currency conversion on a bank to bank basis. If you would like a quote or to find out more about the service I offer, click below to send me a free no obligation enquiry. I regret I cannot help with cash or holiday funds, and can only assist those looking to have currency wired to a bank account. 

Click here to send me a free no obligation enquiry today.