A weaker Euro means fewer Pounds for British vendors who repatriat their funds to the UK. Using a forward contract might help in some cases.
By Luke Trevail of TorFX
Happy New Year!
Or perhaps not for the Euro zone as we continue to see the proverbial nails being readied for the coffin that contains the single currencies’ woes.
Not chirpy, I know, but for many investors and property owners in Spain it’s time to look at the bigger picture, which doesn’t paint a pretty scene as the hang-over continues into 2012.
The second half of last year revealed a number of detrimental factors that have hurt the Euro zone: worrying decline in stocks, increase in unemployment, Governments finally pulling their heads out of the sand and recognising the problems within their own countries have all contributed to the crisis, which left people asking whether the single currency will even survive a year.
It is a fair assumption that the Euro zone debt crisis will remain the central focus of markets going into the New Year, so further weakening of the Euro is expected.
The outcome of the EU Summit last month did little to support the currency, with the outlining of plans to work towards greater fiscal integration in the euro zone failing to provide any comfort to the market as GBP-EUR pushed the €1.20 (0.833) level, and some forecasting €1.25 (0.8) by the end of February.
So the Euro could well continue to fall, in which case now might be a good time to sell it, or get a forward contract to do so if you are not yet ready (for example, if you are in the process of selling a property in Spain).
For example, if you wanted to change Eurso into Pounds in June last year, when one Pound cost 1.11 Euros, but didn’t have access to the Euros until December, a foward contract could have saved you £6,992.21.
A forward buying option is easy to set up
Firstly, you agree a rate of exchange for the amount of Euros that you are looking to sell and give a date that you know that the funds will be available before (bond maturity, or date of expected house completion for example).
A 10% deposit is needed within a few days of agreeing the rate and you can then relax and not be affected by any market movement, and can get your money at any stage at the fixed rate and all you need to do is send over the Euros when you have them before the end of forward contract.