When you are a British buyer planning to purchase property in the Eurozone, the exchange rate can play a major role in determining your budget. Where will the pound sterling be a year from July 2018 and what factors might affect its rise or fall against the Euro?
Pound Sterling, Forecast
The second quarter of 2018 hasn’t been wonderful for the pound sterling. Factors such as the unlikelihood of a rise in interest rates, a fall in retail sales and a lack of growth in wages have impacted negatively on the pound sterling bring it to around €1.12, whereas in the previous quarter it had stood at around €1.14. It doesn’t seem like a huge difference until you want to exchange thousands of pounds into Euros to complete a purchase and that’s when you notice the effect.
According to recent data from Smart Currency Exchange, “There’s clear indication of greater volatility on the horizon, with a greater gap between the minimum and maximum rate predictions by December than September.” Its analysts also believe that more volatility is on the way as the UK enters 2019 and the deadline for leaving the EU in March. You hardly need to be a currency analyst to have seen that coming.
However, Brexit isn’t the only thing that could have an effect on the pound in your pocket versus the Euro. Seven other factors could have an equally dramatic impact on exchange rates.
#1 – The possibility of a UK general election
With the Conservative party tearing itself apart and Labour not in much better shape, will there be a leadership contest and possibly a general election.
#2 – Unbalanced economic growth
The UK economy showed growth of 0.3% in May 2018, but it was all in the services sector. Manufacturing and construction are shrinking by comparison.
#3 – No interest rate rise
There was a rumour that the Bank of England would raise interest rates in August, but experts now think that the chances of this happening are now only 50-50.
#4 – Eurozone politics
Eurosceptic, populist and nationalist politicians in the EU< particularly in Italy, have been making big investors very nervous about the possibility of a political crisis in Europe.
#5 – Quantitative easing in Eurozone
The Euro could rise against the pound sterling when the European Central Bank cuts its quantitative easing programme to €15 billion per month in September.
#6 – No interest rate rise in Eurozone
Mario Draghi, President of the ECB, has stated that interest rates won’t rise until the middle of 2019. See factor 3 above!
#7 – Trump trade wars
The possibility of a massive trade war with Trump’s USA has shaken business confidence in Europe. However, Jean Claude Juncker’s meeting with Trump on 25th July to discuss trade tariffs has hopefully calmed everyone down.
The big banks’ forecasts for the exchange rate differ by as much as eight cents, and the reality is that nobody can accurately predict what will happen. One way to protect your money is to look at getting a ‘forward contract’ with a currency exchange that lets you secure today’s exchange rate for up to a year ahead. It’s a tricky business deciding when to do that and something of a gamble. But, it could save you money if you’re buying a property abroad a year from now.