Coronavirus, Currency, and foreign property – what you need to know
The first half of 2020 has been dominated by the coronavirus crisis, with the global pandemic having a dramatic impact on personal freedoms, economic projections and financial markets.
The currency market experienced particularly extreme movement back in March as the worldwide lockdowns drove investors to the safe-haven US Dollar.
Currencies like the Pound and Euro plummeted – with the Pound hitting multi-year lows – and have yet to recover to pre-pandemic levels.
Whilst we have been regular commentators on the impact of currency of investments, as part of our regular i-Wire investment briefings, there are of course broader implications for our clients where larger currency transfers are involved, such as mortgage payments or renovations on overseas property.
The dramatic swings in exchange rates had a significant impact on the value of international currency transfers.
For example, the GBP/EUR exchange rate dropped from highs of €1.20 to lows of €1.06 in March before climbing back to €1.11 by the middle of the year.
The 14 cent discrepancy between the highest and lowest GBP/EUR exchange rates would have meant the difference of €28,000 on a £200,000 currency transfer.
Although GBP/EUR has recouped 5 cents, a £200,000 transfer made now would still be worth €18,000 less than earlier in the year.
GBP/USD, meanwhile, fell to its worst levels in 35 years before returning to trade in the region of $1.25.
For those planning an international property purchase or sale, the uncertainty and fluctuating currency landscape makes it extremely difficult to time a transfer effectively.
As mentioned, the Pound has recovered from its worst levels, but will its recovery continue as Brexit negotiations progress and fears of a second wave of coronavirus infections linger?
Or could the Pound backtrack once more?
Similarly, will the US Dollar experience another surge if the number of coronavirus infections start to rise? Will the Euro move higher if the Eurozone shows signs of economic recovery?
Having an awareness of what’s happening in the currency market – and what could inspire movement in the future – is essential if you’re planning an international currency transfer and want to get the best return.
Equally important is understanding the different currency transfer services available…
Currency transfer services
If you’re buying or selling a foreign property and need to transfer funds overseas there are a number of specialist services that can help you protect yourself from exchange rate movements.
Here are some of your options:
Spot contract
As the name implies, a spot contract allows you to move money ‘on the spot’ at the current exchange rate. This option is good if the current exchange rate is favourable or if you’re under time pressure.
Forward contract
If you don’t need to move your money right now but you’re concerned the exchange rate could weaken you can use a forward contract to fix the rate up to a year ahead.
Fixing a rate in this way means you can secure a rate and know that the amount of money you’ll receive for your transfer won’t change no matter how much the currency market moves in the meantime.
While you would miss out if the exchange rate strengthened, you’d be protected from a sudden drop in the rate.
Limit order
If time is on your side you can use a limit order to target an exchange rate higher than the current market level. You set the rate you want to achieve and your transfer will be made automatically when the market moves to that level.
Stop loss order
With a stop loss order you can set a worst-case rate. Simply set the rate and your transfer will be triggered the second it’s hit. With this service your transfer would be protected if the exchange rate keeps tumbling.
Rate alerts
Rate alerts give you the ability to target a rate without tying you in to a transfer. Get automated updates by text and email when your target rate is hit and use the information to decide whether you’re ready to move your money or if you would rather hold out for a better rate.
In the current climate – and with the expectation that there will be further exchange rate volatility this year – keeping an eye on exchange rates and understanding your options is crucial if you want to plan an international currency transfer for the right time.
If you would like to know more about how you can bring more certainty to your exchange rate transfers and your planning with currency, then please do get in touch with your HFMC adviser team and we will be glad to introduce you to our professional network to help.
