The pound prob­lem

The Jewish Chronicle - - Business -

IF you just landed on earth in the past few weeks, hav­ing come from outer-space, you could be for­given for think­ing that you had ar­rived at a time when the world was in a state of col­lapse.

The streets have been burn­ing and so have the mar­kets, with fall­ing stock prices, banks re­port­ing huge losses, in­vestors run­ning for cover and the whole world seem­ingly pitched head­long into melt­down. Sounds like a good time to take a hol­i­day.

Well the for­tunes of the pound are not so easy to pre­dict at the mo­ment, and the amount you will get for your hol­i­day spends, over­seas prop­erty pur­chase or any other for­eign ex­change trans­ac­tions, will clearly be af­fected.

Many peo­ple are jet­ting off to the Con­ti­nent this sum­mer, and many of my clients have asked why it is that ster­ling has not strength­ened against the euro in light of the well­doc­u­mented crises in the re­gion.

The an­swer is linked to how closely our own econ­omy is tied to the Eu­ro­zone. We may not be a mem­ber of the sin­gle cur­rency but our trade is so closely linked to it that ster­ling has been suf­fer­ing pe­riph­eral dam­age through­out. The well-doc­u­mented prob­lems in Greece, Spain, Italy and be­yond are not set to go away any­time soon — but the UK has its own eco­nomic dif­fi­cul­ties to ne­go­ti­ate.

The Bank of Eng­land’s de­ci­sion to slash its growth fore­cast comes on the back of a string of sub­stan­dard per­for­mance data from all sec­tors. If any­thing, this de­ci­sion high­lights the lack of clar­ity ev­ery­one has about what is go­ing to hap­pen as we con­tinue to stum­ble out of this re­ces­sion.

That said, we have seen some small gains for the pound in the past few weeks. This means you might get a few more eu­ros for your pounds if you are one of the thou­sands of peo­ple look­ing to take a hol­i­day in Europe over the next few weeks.

How­ever, if you are buy­ing a prop­erty, or mov­ing a large amount of money over­seas for some­thing other than hol­i­day spends, the long term pic­ture is far tougher to pre­dict.

There are ways of pro­tect­ing your­self against ex­po­sure to volatile ex­change rates. It all de­pends on what you are look­ing to do and when. By us­ing the right kind of hedg­ing prod­ucts it is pos­si­ble to set a worstcase sce­nario rate in ad­vance, whilst still en­sur­ing you will see the up­side if the mar­kets move in your favour.

No-one has a crys­tal ball, and even for those of us who watch the mar­kets ev­ery day, there is no real in­di­ca­tion of how all this in­sta­bil­ity will in­flu­ence the rates as we move for­ward. All that is cer­tain is that tak­ing a strate­gic ap­proach to your in­ter­na­tional pay­ments might be a very good idea right now. Plan­ning ahead might mean that you min­imise your chances of los­ing out a lit­tle fur­ther down the line. Ben Mitchell is an in­ter­na­tional cur­rency spe­cial­ist at for­eign ex­change bro­kers, World First.

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