by Simon Hilton, senior foreign exchange consultant at World First and official Expat Focus foreign exchange partner
Britain has suffered a disappointing summer of sport, with the recent failure of England’s football team in the World Cup, a whitewash for England’s rugby players in a three test series against New Zealand and defeat in the cricket versus Sri Lanka, who won their first ever test series in England. Add in Andy Murray’s worst Wimbledon performance since 2005, and that caps a pretty miserable month or so for those of a sporting persuasion. Thankfully, the UK economy isn’t suffering in quite the same way; in fact the opposite is true – it continues to flourish.Sterling has been amongst the best performing currencies, beaten only by the New Zealand dollar (by 1%). The pounds v dollars exchange rate (GBPUSD) is at its highest level since October 2008 and pounds v euro (GBPEUR) at its highest since October 2012.
Clearly, the catalysts for sterling strength have been US dollar and euro weakness for their own reasons, but also a change in tone towards interest rate rises by Bank of England Governor Mark Carney. Speaking at Mansion House in the City of London, Carney stated that home owners and businesses should be prepared for interest rate rises and that the first of these “could happen sooner than markets currently expect”.
Right now seems like an excellent time for expats to get more for their money when buying property overseas. At the start of July, with the GBPEUR exchange rate above 1.25, £300,000 would get you more than €375,000. At the start of June you’d have got €6,000 less in the space of just a month. Back in March, you’d have got as little as £358,000 – that’s €17,000 less than you’d get now. What a difference that could make to the house you could afford.
It’s a similar story when looking to buy in the US. With GBPUSD starting July at 1.705, £300,000 would get you $511,500. At the start of June, you’d have got $9,000 less and going back to the start of February the difference would have been nearly $20,000. It just shows you how strong sterling currently is, and why transferring now could pay dividends compared to transferring earlier in the year.
The question on everyone’s lips is how long can this sterling strength last for? It’s impossible to know for sure, as always with the currency markets, but according to Jeremy Cook, Chief Economist at World First, “the outlook for sterling versus the euro is very good at the moment. ‘Given all their problems, why is the euro not suffering more against the pound?’ is probably the most common question I have been asked in the past couple of years and the reasons have changed as the crisis has gone on. However, through this summer the prospects for a weaker euro have been dramatically increased by European Central Bank President Mario Draghi’s commitment to some form of monetary policy loosening.”
The pound against the dollar situation is a lot more difficult to call, but according to Cook, “we’re looking to see USD win back some of its recent losses through the second half of the year and, with GBPUSD at multi-year highs, if you are looking to send a large amount of money to the US anytime soon it might be a good time to fix.”
Fixing an exchange rate for a transfer in the future means that if the rate suddenly goes against you, you’ll be protected, having already agreed a rate in advance. It could end up saving you a lot of money, and just think what you could do with the savings when you move abroad.
Simon Hilton is a senior foreign exchange consultant at World First specialising in assisting private clients and companies with their foreign exchange transactions. Simon is authorised by the FSA to offer foreign currency options. Contact Simon today for a free, no-obligation currency transfer quote.
World First transacted over £4.7bn for their 40,000 clients in 2012 and have a 3A1 credit rating from Dun & Bradstreet – the highest possible rating for a company their size. As well as tailored hedging solutions designed to protect you from adverse market movements, they also offer excellent service. Winner of the Client Focus Award at the 2012 National Business Awards, they provide personal service with a dedicated dealer, and a regular transfer service, which is perfect for mortgage or rental payments.