Tel: +34 93 665 8596 | info@spectrum-ifa.com

Linkedin
Viewing posts categorised under: Currency fluctuations

Currency Exchange and the benefits of using a specialist provider

By Spectrum IFA
This article is published on: 2nd February 2021

02.02.21

Relying on a bank to transfer currency is an expensive option. Currency transfer specialists provide competitive terms, secure, swift transactions and a range of other benefits including regular payments, forward contracts and rate tracking alerts.

At The Spectrum IFA Group we work with Smart Currency Exchange to deliver the best possible rates, service and support for our clients.

Whilst nobody can predict exchange rate direction, the relative strength (or weakness) of the euro is relevant for most of us. I attached a weblink to Smart’s 2021 quarterly currencies forecast.

Smart Currency Exchange
Quarterly Forecast 2021

A historic Presidential election, Brexit deal and global pandemic sent currencies in directions that no one could have predicted in 2020.

Does that mean matters will settle down in 2021? We wouldn’t suggest you bet your transfers, your property budget and your future plans on that!

Fresh uncertainties for the year ahead bring new challenges for economies – and currencies – too. So, predicting the pound’s movements accurately can be a near-impossible task – even for the major banks.

I invite you to read this quarter’s currency forecasts, but with a strong suggestion that you do not base any decisions on them. Predictions for GBP/EUR range between 1.06 and 1.28 over the next 12 months!

Smart Currency Exchange

What’s in your Quarterly Forecast?

Post-Brexit special – what happens now?
Looking to buy a property overseas this year? What do you need to consider in a post-Brexit world? Our resources section can help.

New and improved tables and charts
How are economies coping in the midst of the pandemic? Our new charts and tables offer a deeper insight.

Expert analysis sections
Smart’s Senior Risk Management Analyst offers his insight and opinion – do you agree with him?

Your next move?
In this climate of uncertainty, how should you plan for the future?

For any further information on currency exchange, please contact your local adviser or please send an email to: info@spectrum-ifa.com

Financial Advisers in France
Financial Advisers in spain
Smart Currency Exchange

Currency Fluctuations

By Gareth Horsfall
This article is published on: 17th October 2017

This week I want to dedicate my Ezine to the currency of living abroad.

How many people do you know in your home town or in your home country that worry about currency fluctuations? Have you ever heard anyone worry about the EUR v GBP or EUR v USD level at any one time? Maybe they look once a year when they are going on holiday and leave the post office with a smile on their face or have a sullen expression depending on the exchange rate. But for the rest of the year?

It’s not so simple for the life of the straniera/o!

Almost everyone I know is concerned to some extent about the exchange rate. Whether it is someone who is building a house and watches the exchange rate drop (you know who you are!) or people living on fixed pension incomes. I also include myself in the exchange rate trap since part of my earnings are in GBP. I understand your pain.

Of course, these are the simple aspects of currency re/devaluation and to some extent we can budget and plan for its eventuality and prepare ourselves. But what about when multiple currencies are at play in our investment portfolios. There it can create even more unusual effects.

The following comments (slightly modified by myself for easier understanding) come from Robert Walker at Rathbones Asset managers who wrote a piece about the interplay of currencies in a managed portfolio of assets. I thought it might interest you.

CURRENCIES AT WORK
With a portfolio approach that is global in nature, currency volatility is playing an important role in the reported returns to clients on a quarter-by-quarter basis. The last two years have seen substantial US dollar, British Pound and Euro volatility as confidence in the respective economic regions ebbs and flows. This has a profound effect on how the overseas assets’ performance are reported in the investor’s base currency, based on their individual circumstances.

US DOLLAR
The US dollar has been a safe haven in times of increased economic uncertainty. In the first few months of Donald Trump’s presidency, the US dollar strengthened on the presumption that tax cuts would stimulate the economy. This has subsequently reversed, as the realisation of many false or premature promises has taken hold.

BRITISH POUND
The British pound has seen its value fall significantly against the US dollar and euro due to Brexit uncertainty. Until the exact path of Brexit and the economic ramifications of this are known, it is likely that the pound will remain weak. There will be many twists and turns along the way until March 2019, not least with the Conservative’s General Election result and subsequent reliance on the Democratic Unionist Party. The current status quo is very vulnerable to further turmoil and the weakness of sterling is a by-product of this.

EURO
At the turn of 2017, markets were focussing on the possibility of anti-establishment vote in both The Netherlands and France. At the time, both countries had parties with anti-European Union policies in opinion poll ascendency and thus the consensus was to remain underweight in the Eurozone. Since that time, the euro has undergone a substantial recovery of over 14% against the US dollar as political risk subsided and economic confidence in the Eurozone improved. Against sterling, it is up over 7% this year in addition to the weakness after Brexit of 2016. Both of these currency movements have had the impact of weakening the value of US and UK assets for euro investors.

THE INTERPLAY OF CURRENCIES
Performance of globally diversified portfolios has been affected by each of these currency movements. For example, had a US investor bought euro assets at the start of 2017 the translated value would be increased by 14% due to the currency effect alone, but a euro investor who bought US assets at the start of the year would be seeing a translated loss of over 12%. Investors in sterling will have seen the value of overseas assets increase markedly during the Brexit process as the pound has weakened significantly, but euro investors with sterling exposure have seen a corresponding fall.

Over the long-term, we would expect the impact of shorter term currency movements to average out. For the pound particularly. (See comments about the Pound in the right hand column).

When managing portfolios in euros, sterling and US dollars, we ordinarily have a degree of country of residence bias to a client’s base currency. However, this is dependent on a client’s unique circumstances. Our portfolios are globally diversified, where we are trying to gain exposure to a portfolio of high-quality global assets in order to reduce risk to any one particular economic region. Indeed, currency analysis can be somewhat circular, as the underlying investments in each region are typically multi-nationals that have a global spread of currencies. This can mean that an individual portfolio may deviate against a certain measure or benchmark over the short-term, but which is most likely a temporary effect, but we feel that the spread of global investments will reward clients well over time, rather than focusing on fast changing and unpredictable currency movements.

HEDGING
Almost all investment professionals admit that forecasting future direction of currencies is a thankless task, as currencies are largely influenced by future unknown events which are, by definition, unpredictable.

As with most investments, volatility can also be driven by speculative investors such as hedge funds. Hedging currency risk, i.e. eliminating the currency impact on returns and focussing on the underlying return, is sometimes considered by investors. This can add to certainty but also more cost. In many cases, due to the inherent unpredictability of currency markets, hedging not only detracts from returns, due to the increased costs, but often proves to be the wrong action in hindsight.

If you want to review your portfolio returns over the last year/s with an eye on the impact of currency fluctuations and how this might affect your income and expected returns then you can contact me on gareth.horsfall@spectrum-ifa.com or call me on 3336492356