Sterling has had a pretty dreadful time of it over the last week. This morning it has crashed to a new post-Covid low against the US dollar and is a good 2% down on where it started August against the euro. It is also well down on the Canadian dollar, Norwegian krone and Swiss franc.
GBP/EUR remains, however, stronger than at the start of summer and well up on this time of year compared to the post-referendum norm. The big worry is that it ‘reverts to the mean’ of the past few years.
This is a quiet week for data in the UK, which might be a welcome relief after the barrage of bad news last week for the economy.
Anyone buying US dollars right now will have wished they hedged them last year when the pound was buying well over 15% more dollars than it is now. None of this was predicted by the currency experts, which is a warning for buyers of other currencies.
Hedging is a concept that many people would probably sign up to if they knew about (if only our education system included some rudimentary financial management for children*). It comes, quite simply, from the concept of putting a protective barrier or hedge around your potential losses.
It’s another type of insurance and offers similar peace of mind. Yet many who would never have a pet without pet insurance, go on holiday with travel insurance, or even buy a kettle at Argos without an extended warranty (well, they do only seem to last three months), will balk at hedging their currency exposure when buying a property abroad.
Yet if the pound falls against the euro like it has done against most other currencies lately, they will be faced with an extra cost potentially running into five figures.
That’s why I always urge those making a contract on a purchase abroad, to call their trader today on 020 8108 5163 and discuss locking in their exchange rate with a forward contract.
*Thinking of those with less financial knowledge, if you have friends or family who may be affected by sharp changes in the value of currency, or who simply need to make a currency trade, do recommend Smart to them and you could be in line for £2,000 in flight vouchers in our summer referral bonus. More details here.
