Spanish Pain causes Pound to Gain

April 12, 2012 | By | Reply More
Spain Nears  Precipice, Pound Gains against Euro
Welcome to the first of my weekly  updates regarding the foreign exchange rates. These  are intended as a very brief guide to what’s affected the market in the last  week, to help you decide if now is the best time for  you to change currencies.
Is Spain set to become the fourth Eurozone  member to need a bailout? This is the question on everyone’s lips this week, and one that has helped the  pound to make considerable gains.

The Euro looks set to struggle against the Pound and the Dollar for some time yet. Photo provided by Manu Fernandez/AP

Against the euro, sterling has hit its highest rate since August 2010 at  1.2135. To beat this, you’d  have to go back to the dark days of the financial crisis in November 2008, so it really illustrates what pressure the euro is  under.
Versus risk-based  currencies such as the New Zealand and Canadian dollars meanwhile (so called because they gain when investors feel like taking a risk) the pound has also picked up a cent. This is because, if Spain is about to go under, the prevailing mood on the market is one of caution.
Can The Pound Keep  Gaining?
So if the pound is gaining on the pain in  Spain then, there are (I  think) two things you might be interested to know: Is sterling set to go higher, and what can you do to take advantage?
Regarding the first question, I think it would take a lot to push the pound to the 1.22 mark against the euro. In the past four months, the pound has stuck pretty close between 1.18 and 1.20  against its continental rival and, while hitting 1.21 marks a break in that pattern, it doesn’t guarantee  the pound will keep climbing.
It would take either an economic miracle in the UK or unprecedented disaster in Europe to provide that push (neither of which looks likely.)
How Can You  Benefit?
To take advantage of the present exchange rate you have two choices: The first is to move your funds now, using what is called a spot contract. This (as the name suggests: it happens on the spot) means you change currencies here and now, at the present exchange rate. This is of course preferable if you have an immediate  need to move money abroad.
On the other hand, what is called a forward contract might also be useful. This enables you to lock in the present exchange rate, securing you the rate available today even if you don’t have a pressing need to change currencies. So  you might be purchasing a home abroad, but do not want your funds sitting in a foreign bank account for a long time. In this case, a forward contract can be genuinely helpful.
I hope this post has been of interest. I will of course return with my next update next week. Of course, if you have any  questions about transferring money abroad in the meantime, don’t hesitate to leave a comment below. I’ll get back to you as soon as I  can.
Peter Lavelle
Foreign Exchange Specialist Pure  FX

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Category: Currency news

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