With thousands of property buyers heading abroad to acquire the home of their dreams this spring, what can they expect from exchange rates?
It is impossible to predict exactly how far and when exchange rates will move. That much will be evident in the analysis of the predictions made in January, see below.
But that doesn’t stop the leading financial institutions from giving it a go each quarter. In this article, we unpack what the major banks predicted in January, as well as what they’ve forecast for Q2 of 2023 (April, May and June), and beyond.
How accurate was the last forecast?
With major banks publishing their forecasts each quarter, how accurate were those predictions against reality? Sometimes they can be spot on, while at other times missing the mark completely.
The average prediction in January for GBP/EUR from the various institutions that publish forecasts was €1.13.
They were pretty accurate. The past three or four months has been a relatively quiet period for sterling against the euro, stuck between a range of 1.115 and 1.145. Compare that with a high of over 1.20 this time last year. We can thank a more stable political scene for that, compared to Liz Truss’s brief tenure as PM, and the sorting out of a few post-Brexit issues.
For GBP/USD their predictions were far wide of the mark. Some predicted that GBP/USD would plummet to a low of 1.07 in the first quarter of this year. In reality, the lowest rate sterling hit against the dollar was 1.18. Indeed, sterling climbed to a 10-month high against the US dollar.
The main reason for that was the collapse of Silicon Valley Bank, and worries that banking and credit problems could spread. That prevented the US Federal Reserve from raising interest rates so quickly and the dollar weakened.
So, where will the pound be by summer?
Against the euro, the predictions for sterling are almost entirely bad. At the time of writing GBP/EUR is at around 1.135. However, most economists are forecasting a weakening in the strength of sterling, with some predicting a serious drop to as low as 1.08 by July and 1.05 by September.
The highest predictions are no better than now, and the average is slightly below the current level at around 1.11 and 1.12.
Therefore, if you are planning to buy a property in the eurozone this year and a rate of 1.08 would put that in jeopardy, do speak to your trader, or sign up fir your free account with Smart Currency.
What of the pound against the US dollar?
Here the banks are a little more optimistic, but not much. The average prediction for the summer is around 1.24, as now, with some believing that the pound will drop as low as 1.10 and an upper forecast of 1.30.
What will affect sterling this spring?
So if you can’t trust the forecasts to be accurate, why read it? In the Quarterly Forecast we delve deeply into those factors that could affect sterling and explain the background to them.
For example, potential central bank actions to defeat inflation, bearing in mind that UK inflation is currently double that of many our competitor nations. Where are the green shoots for the UK economy, especially in the face of huge government subsidies from the EU and US government for their own greentech industries? How will the UK government “make Brexit work”, or can it?
The forecast includes a calendar listing all the potentially market moving events between now and June.
Download Smart’s April to June Quarterly Forecast – Free to download.
What this all means for your budget
A serious drop in the value of the pound could be the biggest risk for your budget. The pound has varied around 7.5% against the euro since this time last year, meaning that a €200,000 Spanish home has cost as little as £165,500 and as much as £180,000.
If you were legally contracted to complete when GBP was at its weakest, could you have found an extra £41,000?
Against the dollar, the pound’s highs and lows were extreme, a variance of 21%. This means a $300,000 Florida villa or New York apartment would have cost as little as £192,000 and as much as £233,000. If you were making an offer when the pound was strong but were legally contracted to complete when it was at its weakest, could you have found an extra £41,000?
With this volatility in mind, we advocate a safety-first approach. Please get in touch with one of our team on 020 7898 0541 to discuss your options. We’d be delighted to help.