Spain Nears Precipice, Pound Gains against Euro
Peter Lavelle at foreign exchange specialist Pure FX
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.
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.
Foreign Exchange Specialist Pure FX
Category: Currency news