At A Place in the Sun Currency we are often asked what we think exchange rates will do next, as of course the value of the Pound makes a huge difference to budgets when you are buying, selling or maintaining an overseas property.
While we don’t have a crystal ball, it’s worth looking at what’s been happening to exchange rates this year, and what might be coming up for the rest of 2023. It’s up to each individual buyer and their circumstances as to when is a good time to lock into an exchange rate, but being armed with some information about the market can help you to make an educated decision, instead of guessing.
The year so far in currency markets
The Pound has had a fairly flat year so far, particularly against the Euro. Following on from the volatility we saw through Brexit, Coronavirus, and the Truss/Kwarteng government, 2023 has probably been the calmest market for some time. However, even small changes can still make a large difference to the cost in sterling of a property purchase.
For a typical €150,000 purchase, based on mid-market rates, you would have paid anything between £130,000 and £134,600 for your Euros at different times this year – a difference of 3.5%.
For currency values this year, the dominating forces have been inflation and interest rates. As economies around the world have raced to raise interest rates to combat inflation, their currencies have become more attractive to investors and tended to increase in value – the problem being that all major economies have been doing the same thing at similar times.
Outlook for the rest of the year for exchange rates
We think inflation and interest rates are likely to continue to be the main influence on exchange rates – but in the reverse order to what we’ve seen already this year. As inflation starts to fall, central banks will pause interest rates or start to bring them back down, and whoever “blinks first” could see the value of their currency fall. There are already rumours that the Bank of England won’t raise interest rates further, depending on inflation falling, so the Pound could fall if that bears true. On the other hand, should Eurozone inflation fall first, the Euro could weaken, which would be good news for those of you buying in the single currency zone such as in Spain or France.
The US Dollar outlook is complicated by the fact that it’s seen as a “safe haven” currency, and in times of global uncertainty, capital flight can increase the cost of the Greenback. We should also consider the war in Ukraine, which everybody hopes for a swift conclusion to, but given the Eurozone’s proximity to the area of conflict and reliance on energy and food supplies from the region, the Euro might benefit when there’s a resolution, which would make the GBP-EUR rate fall.
In summary, there are still many uncertainties in global economics and politics which make it as hard as ever to predict what exchange rates might do next.
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At A Place in the Sun Currency, as well as offering better rates than those offered by typical high street banks on any given day, we can offer tools such as “forward contracts” which you can use to lock in to exchange rates in advance, helping to fix your budget in sterling through your purchase or sale. And, without that crystal ball, we can at least keep you informed about upcoming economic news and, crucially, inflation and interest rate opinions, all of which might just help you navigate the notoriously volatile currency markets.
As we often say to our clients, when you are buying or selling property overseas, remember that’s your aim, rather than trying to become an amateur currency speculator. If you are lucky, leaving your currency planning until the last minute can work out well – but if you’re not, it can be an expensive omission. A Place in the Sun Currency are specialists at helping buyers and sellers of overseas property, and we’re happy to talk you through everything currency-related to help make your purchase smoother, and cheaper.
