Wednesday, 3 May 2017

Should you buy Euros now, or wait?

Over the last 6 weeks, the GBP/EUR exchange rate has risen from €1.14 to highs of €1.20, before settling back down at the current level of around €1.1850. That's a very healthy rise, and close to the best levels we've seen since the referendum last June.

Clients that need to buy Euros (for a property purchase in the Eurozone for example) are very keen to know whether to fix a rate now while it's better than it has been, or hang on in the hope that it might go higher. In today's post we'll first take a look at why the rate has risen, and then I'll give my view on whether the Pound will go up down against the Euro in the next 6 months to help you to decide when to fix a rate. 

What caused Pound/Euro rates to rise?


There are several reasons for the gains we've seen recently. Firstly, the Pound has been strengthening due to the fact the economy continues to perform well, UK unemployment is low, and inflation has risen which increases the chance of an interest rate hike. Also, the surprise snap general election has also helped the Pound move higher. It's almost a given that May will win a landslide, which will make it easier to agree a deal with the EU. Lastly, the Euro is quite weak at the moment due political uncertainty in France, and for the time being the single currency is relatively cheap to buy. Those are the main reasons for the rise, and the chart below shows how Pound/Euro rates have gone up since mid-March.



Will GBP/EUR go up or down in the coming months?


This is the question that I'm asked most at the moment. Ultimately it's impossible to predict if rates will rise or fall, but by analysing the information that is available, you can make an informed judgement on what may happen, and then make a decision on whether to buy Euros now or wait.

Firstly, I think that much of the inherent weakness in the Euro will evaporate this weekend, assuming the polls are right and Le Pen does not win the election. This will give much stability to the EU and it's likely the Euro will gain strength and become a little more expensive to buy.

Secondly, since Article 50 was triggered in March, Sterling has been given some much needed breathing space, as clearly illustrated in the graph above. That's because the markets knew it would be at least a few months until negotiations would actually start in earnest. Very soon, the UK and EU will fire their opening salvos in what is likely to be a bitter and acrimonious battle that will be fought for quite some time. Ultimately, a deal will be done, a free trade agreement reached, and the Pound will recover, but in the short to medium term, while initial proceedings are on-going, market uncertainty will return that I think will weaken the Pound back to levels seen earlier in 2017.

So, should you buy Euros now or wait?


My view is that if you need Euros in the next 3 months, then you should consider fixing a rate while it's much more attractive than it has been. Even if you don't need your currency for some time, you can freeze the rate now using a Forward contract for a small deposit.

If you need your Euros in 6 months time or more, then you should fix a rate on 50% of what you need, to hedge your bets and remove a portion of your exposure to the market. This gives you some protection, while allowing you to buy the rest should rates recover once the election is out the way and Brexit negotiations have moved along.

If you need to buy or sell Euros, or indeed any major international currency, then we can help. Our rates are extremely competitive, and we have range of contract types to suit various requirements. To find out more about how we can help with your currency requirements, click below.

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