The currency markets have settled down after the immediate post election excitement. The pound is certainly lower – against both the euro and US dollar – than the night after the election, but do take a moment to look at the graph and its position compared to the past two or three years. GBP/EUR has not been consistently above its current rate for at least two or three years and GBP/USD for at least 18 months. It really is a great rate at the moment, and we have no way of knowing how long it will last.
You’ll have noticed that I often promote the benefit of locking in your rate for the year ahead via a forward contract. I cannot reiterate this enough over the uncertain year facing us.
What a forward contract does is, on payment of a small deposit, lock your rate in for 12 months. That enables you to plan your life knowing how much you have to spend in euro, dollars or whatever.
The idea of a forward contract probably comes from farmers. Having ploughed, sown and tended their crops for months, the last thing they needed was for the whole crop to be wiped out at the last minute by blight or bad weather or locusts, thus facing them with ruin or starvation for the year ahead. So they would sell the crop in advance to a third party at a fair rate.
If they got a bumper crop they were paid the same as if the whole lot was ruined. So it was a kind of insurance. Same with your currencies – lock it in today and wherever the pound goes, up or down, you get today’s excellent rate – one that you have already decided is sufficient for your plans.
I wonder what else, as we make our plans and resolutions at the start of the year, we would happily lock in if we could? The weather, if booking a camping holiday in the UK in August? Enough days of sunshine to make it “safe”, but allowing a day or two of torrential rain… rather than risk a week-long deluge.
For those of us with children with exams this summer, perhaps we might lock in reasonable A Level results – enough to continue with their career plans but accepting that he or she probably won’t turn out to be a genius after all!
I know quite a few football fans who would happily lock in 40 points in the Premier League right now, and I wonder what medal haul Team GB would see as acceptable for Tokyo this summer – half the of the 67 it won at Rio in 2016 maybe, or less?
If you would like to lock in your rate for the year ahead, you can then stop checking the rate every few hours and watch something more interesting instead!
Call your trader on 020 8108 5337; we’re here all day today and until 4pm on New Year’s Eve.
Happy New Year!
