Foreign Exchange Rate report for 2008 & 2009

Susana Suspenda the legendry marketing and exchange rate analyst of Spanish Hot Properties analyses the currency trends of the past 18 months and what the future holds for the Sterling Euro exchange rate.



Important Levels/Ranges GBP/€ During 2008.



January 2008 - March 2008 GBP/€ rate range 1.3600 – 1.3000

March 2008 – Nov 1.3000 – 1.2200.

November 2008 – Year end GBP/€ rate range of 1.27 – 1.02.

New Year GBP/€ rate range Low recorded on 1st Jan 1.0280 High so far 1.13 recorded on the 9th Jan 2009. Currently the rate is floating around €1.16 and has nearly touched €1.20





The British Pound has had to endure an absolutely torrid time through the whole of 2008. Having opened the year at €1.3600 to the Pound we had to wait until March 2008 for the rate to break through the 1.3000 level. Once through we remained within a trading range of high 1.2900’s to lows of 1.2200 right up until November 2008. From the month of November onwards we saw a far more aggressive movement in the decline of the Pound. Having broken through the 1.2000 level the pound plunged toward parity with this move stopping just shy at 1.0200 on the 30th Dec 2008.



The Pound recorded an overall decline of 23% against the € during 2008.



Having started 2008 with the disruptions to both global and credit markets well documented it was expected that UK output growth would moderate during the course of the year. Consumer spending began to fall and the climate for investment deteriorated. The market for securitised debt remained virtually closed by now. The Bank of England’s Monetary Policy Committee’s role was to ensure that inflation was kept in check which meant that UK interest rates were not reduced in line with those in the United States.

Against this background, UK banks tightened the terms offered on new loans to households and businesses which further compounded the declines in the UK housing market prices. With new mortgage lending falling to the lowest levels since records began the housing market in the UK has all but come to a halt. Overall house price decline were recorded just shy of 16% year on year.

When GDP (Gross Domestics Product) fell into negative territory during the autumn of 2008 it became absolutely apparent that the UK’s ability to steer clear of recession was not possible.

Rising unemployment across all sectors and a total lack of confidence recorded within both the Services and Manufacturing arena’s reinforced the markets desire to sell any Sterling based assets and to switch to other denominated investments. There had already been a flight to quality namely United States Treasury Bonds and also into the € with the perception of it now being considered a reserve currency.

The months of November and December were not a time for cheer for the Great British Pound. Having started November close to 1.27 against the €euro it came within a whisker of parity on the 30th Dec when it fell to just above 1.02. This fall was not helped by the continual talk of a run on the pound and talk from the Confederation of British Industry forecasting that the UK economy will contract the most it has done in almost three decades.



With the Bank of England having been exceptionally aggressive in cutting the base rate by 2.5% since November and with rates at an historical low of just 2% there was little interest for investors to hold onto the Pound. Instead the € was a major benefactor as their own reduction of interest rates had been far slower and measured with Jean-Claude Trichet, the European Central Bank President even commenting that he did not want to be trapped with borrowing costs too low. This in fact fuelled the markets to buy €’s as it was perceived that they may therefore hold their rates a 2.5% for the foreseeable future. With mortgage approvals falling to record lows in the UK, coupled with plunging inflation numbers, rising unemployment and falling manufacturing it appeared that the UK economy was in a far worse position to cope with the ever worsening global recession.



How things have changed since the start of the New Year.



Having failed to achieve parity we have seen a major correction with the pound posting its biggest weekly gain since the common currency’s debut in 1999, as the Bank of England slowed the pace of interest-rate cuts. The GBP/€ rate rose to GBP/€ 1.13 as the markets have had time to consider the most recent economic data which has confirmed the Euro zone slump is far worse than previously expected. The Euro zone’s services and manufacturing sectors shrank by the most in at least a decade and consumer confidence is now the weakest on record. Also with Europe’s rate of inflation falling below the target rate of 2% there appears little reason for their rates to be held at the current level of 2.5%. The fact that they have been slow in implementing cuts previously will likely mean that they will have to compensate for more aggressive cuts in the future to help aid any recovery.



We have already seen the Bank of England’s Monetary Policy Committee reduce the base rate again by 0.5% to 1.5% on the 8th of Jan, its lowest level ever since the Bank of England was created in 1694. As this cut was universally expected Sterling did not suffer as it had previously. The focus now will be whether the ECB will cut or not later this week. Bundesbank (German Central Bank) President Axel Weber stated that the German economy, the euro region’s largest, may contract this year by more than the European Central Bank has forecast. It is expected that the ECB will lower its main rate by 0.5 percentage point to 2 percent on Jan. 15th.



At the time of writing this article the €1.15.49 Expect the Sterling rate to hold these levels for the moment, obviously time will tell if the rate breaks he magic €1.20 mark



As for the future history has thought us that whenever sterling has fallen through a floor it has never recovered and €1.70 in 2002 to currently levels is a considerable drop over a period of time. Will it ever get back to €1.36 only time will tell but history tells us it won’t.



For someone looking to buy a property in Spain at this moment they should seek guidance from a currency broker to help time their transactions to try to take advantage of any possible improvements of rate. Also the ability to lock in a rate of exchange for a future delivery date is possible and certainly helps clients to appreciate their known costs.



For those who need to make either mortgage payments or regular transfers from the UK for living expenses there are other tools available to minimise the effect of the weaker Pound as much as possible. Many brokers offer Regular Payment Plans which allow you to fix a rate of exchange for monthly transfers with very low monthly transfer costs. This would mean the Sterling cost of your monthly mortgage payments can be fixed, or that the number of Euros your pension/income buys will be consistent. If you want to leave the rate variable while the rates are low and then look to fix it when the Pound is a little stronger that is also possible.



For any currency, and whether buying or selling, a currency broker can provide the tools that allow anyone to take advantage of favourable rates. They can offer more detailed guidance on the outlook for the exchange rates, and to keep you updated as the outlook changes as well as notifying you when a particular price is reached.