Sterling Strengthens After Retail Sales Data
GBP/CHF rates touched the 1.51 mark on Wednesday after better retail sales data from the UK pushed the pound up to fresh highs against the franc, euro and other major currencies. Sterling has been on a strong run of late as better economic data suggests the UK economy is now firmly on the road to recovery. The franc has also een struggling as comments from ECB president Mario Draghi have left it on the back foot, mirroring the euro’s demise. The graph below shows GBP/EUR movement over the last week.
The Office for National Statistics revealed on Wednesday morning that retail sales in the UK had risen 1.3% between March and April, significantly better than the 0.5% increase analysts had been expecting. On a year on year basis, retail sales were up 6.9% since this time last year, the strongest increase in 10 years. The ONS said that food sales over the Easter perios had made a significant contribution to the inflated figures. Quarterly retail sales have now risen for 14 months in a row. The figures boosted the pound, gaining around 0.8% against both the euro and the franc following the announcement.
Other figures released on Thursday morning showed there had been no change to the level of quantitative easing in the UK and that none of the nince policy makers at the MPC had voted in favour of raising interest rates just yet. Last week Mark Carney said that the Bank of England would be looking to raise interest rates next year but that the rate would remain at historic lows for the forseeable future. He also expressed concern over the strength of the pound following the Bank’s inflation report towards the end of last week, saying that it may start to have a detrimental effect on the recovery. The stronger the pound is, the more expensive domestically produced products become to overseas purchasers. This is particularly worrying as sterling has recently hit 18 month highs against the euro; the eurozone being our main trading partner.
The pound’s strength may also be a concern if you’re looking to move a foreign currency back into sterling at some point in the future. With sterling forecast to continue strengthening, you may be facing diminishing returns as the pound marches on. The forward contract can help you take advantage of the current rate, protecting you from any adverse movements in the currency markets.
The Forward Contract
The forward contract can help you take advantage of the current favourable exchange rate and protect you from adverse movements in the market. You would effectively be fixing the price now for a transaction that will take place up to two years in the future. You would secure the forward contract with a deposit of just 10% of the total value of the transaction, which you would need to pay within two working days of agreeing the contract and then pay the remaining balance before the contract expires. Once the contract is secured, if the exchange rate heads in the wrong direction, you can enjoy peace of mind knowing that the return from your currency conversion won’t decrease as a result of currency fluctuations, giving you certainty. It is particularly useful if you’re selling a propety overseas and repatriating the proceeds.
If you’d like to discuss this in further detail, feel free to contact me on 01442 892 062, or email me at [email protected].