A quiet start to a short week

3 September, 2015

Matthew Boyle

A quiet start to a short week It has been a fairly slow start to the short week following the bank holiday in the UK with little movement in the markets. Yesterdays main release came from Australia in the way of their interest rate decision but with no change to the headline rate at 2% rates remained stagnant. European data throughout the day was a mixed bag with an improvement to German unemployment figures whilst Eurozone Markit manufacturing showed a decline. Equally it was a mixed day for UK ecostats with an improvement in mortgage approvals whilst consumer credit showed a decline. US data for the day also showed an improvement in construction spending whilst ISM manufacturing data showed a decline. All in all it was a particular mixed day with no real winners or losers, GBP gained marginally against EUR throughout the day’s trading still perhaps correcting from recent loses whilst the USD made minor gains against the single currency.

Today is fairly busy in the way of data with the UK taking a back seat as the majority of releases come from Europe and the U.S. In the morning Spanish Markit services PMI and the ECB interest rate decision dominate the releases. In the afternoon we then have the ECB monetary policy statement, with the focus then shifting across the pond to the U.S for markit services and ISM data.

With GBP rates for buying both Euros and USD having dropped considerably recently, those of you with upcoming requirements may like to consider fixing your exchange rate with a Currency Index forward contract and here’s how;

Forward contracts

Forward contracts can help you to reduce the risks of fluctuations in the currency markets.

You can lock in an exchange rate for a specific amount of currency with a forward contract so that you can use it at a later date, without having to use working capital.

If you are in the process of purchasing a property overseas you may like to consider how you might protect yourself against changes in foreign exchange rates and other foreign exchange risks. A small variation in the rate could cost you thousands of pounds if not managed properly. Our years of experience help to protect your bottom line.

How does a Forward Contract work in practice?

( please note the currency and figures used are an example)

Imagine you are purchasing a property worth 140,000 Euros in 3 months’ time. Based on a GBP/EUR forward exchange rate of 1.40 you have determined that will cost you 100k GBP, meeting your budget.

However, GBP might weaken against EUR during that period to a rate of 1.38, meaning that your cost would increased to £101,449.28 GBP

In this case, if you booked a forward contract with Currency Index you would have been able to secure the exchange rate of 1.40, fix the cost and avoid any unexpected impact on your budget.

Of course, you would lose out if GBP strengthened against EUR, but exposing your purchase to currency risks may have a more significant effect – in some cases could even mean the property becoming out of budget. Whereas if you buy forward you can guarantee an exchange rate based on when you order the currency.

Currency Index forward contracts can also provide flexibility enabling you to take delivery of your purchased currency in part or in full at any time between the contract date and maturity date.

How do I book a forward contract?

To book a forward contract you just need to tell us the amount you would like to book, and also the date you would like to book the contract to.

You pay a 10% deposit at time of booking and then the balance on or before the date set. There is no penalty for early settlement of the contract.

The exchange rate you will achieve does depend how far forward you book – the further forward you go the lower the rate.

What happens if my property purchase falls through?

If your purchase falls through, or something goes wrong there are two options in regard to the forward contract and the Euros that have been secured.

1. Settle the contract and keep the Euros for use at a later date. This could either be for a later Euro purchase or can be kept on account when timing favours option 2.
2. Sell back the contract/ Euros. We can sell the Euros back to GBP if you are not in a position to complete on the contract. The sell-back rate, and amount of GBP returned would depend on the market rate at the time, with any loss would be taken from the deposit.
Speak to your Currency Index broker today for some friendly and professional guidance on how to get the most out of your transfer. Currency Index can help you stay well informed and well ahead of the markets.