In last month’s market overview, the GBP/EUR rate was around €1.43, however in the last week we have seen the Sterling/Euro rate drop back away quite sharply from the recent 8 year high. As you can see from the chart below, the rate has fallen from the recent highs of €1.43, down to €1.38/€1.39:
Why has the Pound/Euro rate dropped?
a cut to the bank deposit rate to -0.30%, and increased their Quantitative Easing programme. This had been priced into the market already, and clearly it was overly priced in, as once the announcements came, the Euro really gained strength. This is because the actions taken by the ECB were not as severe as had been predicted, and also will ultimately be positive for the Eurozone, and as such the Euro has pushed higher and become more expensive to buy.
GBP/EUR rates are now well below €1.40 and the market has again failed to sustain itself at the recent €1.43 levels. If you are converting Euros back to Pounds, this is great news and those that need to sell Euros should consider taking advantage of this spike. For clients that still need to buy Euros, you have various options. The rate will probably recover its recent losses and head back towards €1.40 again, but it may take some time, and in the short term will likely struggle to break through this barrier as it’s such a key level of resistance.
With all this in mind, when to convert your funds is of course your decision, and nobody can predict where rates will go. There are however various tools and options you may not be aware of. Much of it depends how risk-averse you are and your attitude to risk. Here are some examples:
- If you need to buy Euros and don’t want to risk losing out on the current rate, you can fix the rate for up to 2 years into the future with a ‘Forward contract’ and only lodge 10% of the total to be converted. This protects against adverse rate movements, allows you to budget, but of course you can’t take advantage of any subsequent gains in the rate.
- Those that are happy to take more of a gamble can use a ‘Stop Loss’ order. This allows you to continue taking advantage of any gains in the rate, but you have a level set in the market, and if the rate does drop then your currency is secured. This option gives you a ‘worst case’ scenario, while still watching rates rise.
- Others may wish to ‘hedge their bets’ and fix a rate on only some of what they need to convert. This option gives some levels of protection regardless which way the market moves.
Discuss your currency requirements with Foremost Currency Group today
If you need to buy or sell any international currency, then get in touch with your personal broker today to discuss your options. Taking a pro-active approach to your currency requirements could be a prudent move, so get in touch today to find out the various ways we can help protect you against adverse exchange rate movements.
Notes to editors:
Alastair Archbold is an FX manager on the dealing floor, having been with the Foremost Currency Group for over 6 years. With over 16 years’ experience in the Financial Services sector, he has a wealth of knowledge for any clients entering the often daunting world of the currency markets. In addition to providing clients with incredible exchange rates, he has also written countless FX articles for various national newspapers and international publications.
About Foremost Currency Group
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