For any UK-based individual or business buying investments or goods in Europe, a change has occurred in the cost price of around 4 percent over the past two weeks, purely through the fluctuation in Sterling to Euro exchange rates. Over the past two weeks, the Pound has moved up from the 1.16 levels against the Euro, first reaching the 1.20s and then faltering again at the end of last week to find itself at around the mid 1.19s at the start of this week.
As many see 1.20 as the key resistance level, ideally hoping that they can achieve a rate of 1.21 or 1.22 for a Pound-Euro transfer, it is a good idea that they speak a Currency Solutions broker early. That way, they can be made aware when Sterling pushes through this barrier and discuss the options available about fixing into this rate – even if the actual exchange doesn’t need to happen for several months. Some clients like to put an actual ‘market order’ in place where funds can be automatically exchanged at the target rate. Others prefer a more flexible approach and to be regularly in touch with me to monitor the exchange rates as they develop.
What has caused these fluctuations against the Euro? The most recent moves have been largely due to events in the Euro zone. Amidst rumours that Portugal will be the next nation to require an EU bailout package after Ireland, bond auctions held by Portugal, Spain and Italy were surprisingly successful last week. These events helped to shore up confidence about the state of Europe’s economic recovery which is why we have seen Sterling move slightly lower against the single currency. Saying that however, this week could shake things up and certainly so far today has seen the Pound gaining back ground on the Euro. Several meetings this week could bring more movement to the Euro rates including finance meetings taking place concerning whether or not nations can agree on whether to increase the size of the bail out funds as well as the vote of confidence on the Irish Prime Minister tomorrow. It is not impossible that Sterling could make it back up above 1.20 if the outcomes of these should be negative or fuel uncertainty in Europe.
The Pound has been gaining strength against the US Dollar and is starting the week at around the 1.59 levels. The Dollar has shown some weakness in the face of Euro strengthening and comments from rating agency Standard and Poor’s that the US credit rating could be at risk has also created some downwards pressure. With both the UK and the US facing a week of mixed data, both the Pound and the Dollar could experience volatility.