January’s currency update: €/£ reached 1.30

It was quite a week for the euro. The single currency was already on the back foot last Friday and it lost further ground this week. It was the weakest performer among the major currencies, losing one and three quarter US cents and falling by two and a half cents against sterling.

But that isn’t even half the story. After more than three years shackled to the euro the Swiss franc was set loose by the Swiss National Bank on Thursday. It ascended at warp speed, eventually settling a little above one-for-one with the euro. Whilst it was not the biggest ever one-day move, the euro’s 15% decline against the franc eclipsed the 11% fall of the Dow Jones stock index on Black Thursday in 1929 and sterling’s 10% drop when Britain pulled out of the Exchange Rate Mechanism on Black Wednesday in 1992. And it didn’t take even a day to happen; it took a minute

Only three days earlier the SNB vice chairman, Jean-Pierre Danthine, had told investors that “the [SFr1.20 = €1] floor rate must remain the pillar of Swiss monetary policy” and that his bank was “fully committed” to supporting the euro against the franc. (To M. Danthine’s credit at least he didn’t say “trust me, I’m a central banker”.)

The SNB’s abandonment of its euro floor was probably driven by concern that when the European Central Bank begins to churn out its quantitative easing money it would be unable to keep pace with the exodus from the euro. The bank’s balance sheet had already grown to SFr 500bn – four fifths of gross domestic product – by the end of December as a result of the money it had created to buy euros

There is widespread belief that the ECB will announce next Thursday the outline of its latest and biggest scheme to pump up inflation in the euro area. Euroland is by no means the only developed country to be hit by deflation; Switzerland and Sweden spring immediately to mind and it might be no more than a couple of months until British consumer prices are lower year-on-year. Everyone is feeling the effect of oil prices, which have fallen by more than a half in just six months. But inflation in the euro zone was already well below 1% even before oil began to head lower.

So, to summarise, the SNB is no longer supporting the euro and the ECB is about to start printing money to buy bonds. Sterling is at a seven-year high, apparently having cracked the €1.30 barrier. The dollar is testing a nine-year high which, if broken, would put it at an 11-year high.

Things are not looking good for the euro. Its only hope in the near term is that the QE package announced by the ECB next Thursday comes as an anticlimax. If it does, investors could be tempted to buy back some of the euros they had sold in anticipation of its decline.

For more information about these and the other options that are available to help send money to and from France as efficiently as possible call the experienced and friendly team at Moneycorp. You can call straight through to the trading floor on 0044 20 7589 3000 and quote “Sextant” to benefit from great rates and first transfer free (usually £15 over the phone and £9 online).

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What next?

Call +44 (0) 20 7589 3000 (Open 7:30am – 9pm Monday 9am to 1pm Saturday to Friday UK Time)

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Moneycorp are Sextant French Properties preferred currency partner and have been selected due to their great rates, great service and great solutions. These are some of the reasons they have transacted over two billion pounds for their clients.

Moneycorp has been in the business of moving money between countries and currencies for over 30 years and offers money-saving foreign exchange to customers ranging from blue-chip businesses to private individuals. We make money transfers simple and help you to manage foreign exchange rate movements.

Moneycorp also offer a number of different contract options for Sextant clients including a forward contract where you can fix a rate of exchange for a period in the future using just a small deposit, perfect to help take the risk out of the currency markets and budget for your French property purchase.

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This entry was posted on Monday, January 19th, 2015 at 9:19 am and is filed under Currency exchange, Finance, Money transfer . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.


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