by Simon Hilton, senior foreign exchange consultant at World First and official Expat Focus foreign exchange partner[Expat Focus editor’s note: This article was written before the recent UK election]
In the run up to the UK general election, sterling has been paying no attention to the polls. At the time of writing (the day before the general election), while we’re no closer to knowing which personalities or which parties will form the next government, sterling is acting as if everything is plain sailing, and has remained stable.
At the start of the year, the pound was at 1.2824 against the euro. Back then, £100,000 was worth €128,240. By March 12th, the rate had jumped to 1.4136, with that same amount of money worth €141,360, which equates to €13,120 more than at the start of the year.Since then, the pound has dipped slightly, but is still well up on the euro compared to where it was at the start of the year. At the time of writing, GBPEUR is at 1.3582, with £100,000 getting you €135,820, still €7,580 more than you’d have got on January 1st.
Whether the pound remains stable after the polls close remains to be seen, and calling the progress of the pound going forward is very difficult. Political uncertainty can lead to economic uncertainty, and the pound could find itself struggling in the weeks to come, especially if it takes that long to install a new government.
Elsewhere, the euro has shown some signs of a rally in the last month or so, having had a difficult start to the year. In April, the euro was 0.46% stronger than the pound. Economic news from the Eurozone has been particularly strong in the past few months, signalling a recovery in fortunes. However, we shouldn’t get carried away; unemployment within the Eurozone is still too high with underemployment – people who want more hours – as high as 75% in some countries.
The US dollar, the success story in 2015 so far, has seen some notable falls in the last month. Over the course of April, the dollar was 3.51% weaker than sterling, and having endured its worst month since November 2011, it was the weakest G10 currency in April.
To illustrate just how far the dollar has fallen, in mid-April, the USD/GBP rate was 0.683. Just a couple of weeks later, at the start of May, that rate had fallen to 0.649. To put that in perspective for those making currency transfers, £250,000 would have got $365,700 in mid-April, but $385,000 – nearly $20,000 more – just two weeks later.
Significant falls were also seen for the Japanese yen and Chinese yuan, which ended April 2.88% and 3.56% respectively weaker than the pound.
However, Aussie dollar has recovered well in April as market expectations of further interest rate cuts have drifted away. At the start of the month, AUDEUR was at 0.7077, before dipping to 0.6946, with AUD 250,000 worth €173,650. By the end of the month, the rate had hit 0.7262, with that same amount worth €181,550 – nearly €8,000 more in the space of just a few weeks – though AUD has taken a slight dip against the euro at the start of May, and the gains against the pound weren’t quite so pronounced.
April has also been a strong month for the Canadian dollar as oil prices have begun to recover. West Texas Intermediate – the main oil contract in the American hemisphere – is up around 22% this month, and this helped the strength of the CAD. Starting April against the euro at 0.7303, it ended it at 0.7541 – the equivalent of nearly €6,000 more than the start of the month.
With all eyes on the UK election, it’s going to be an intriguing few weeks for currency watchers. We will watch and wait with interest.
World First specialises in assisting private and corporate clients with foreign exchange transactions. World First transacted circa £10billion for their clients in 2014. As well as a best-in-class online platform, regular transfer service and tailored hedging solutions designed to protect you from adverse market movements, they also offer excellent customer service. Winner of the Client Focus Award at the 2012 National Business Awards and the Client Focus Award at the 2014 European Business Awards, each customer gets a dedicated consultant and all phone calls are answered within three rings.