Here’s a funny thing. Only a week or so ago I said that I believed that the Euro could hit €1.5 to the pound or more but earlier this week money.co.uk ran with a headline of “Is now the time to swap pounds for holiday cash? Experts warn sterling set for rocky ride ahead of May general election“. Now we cannot both be right can we?
It is true that the Euro slipped back a little this week.
This graph would appear to lend some credence to the the Money story. You have a down, an up and a rather alarming decline. That could be construed as a ‘rocky road’ which is a wonderfully vague phrase when describing an exchange rate and probably better left as an ice cream flavour. If we take a slightly longer term view of the same exchange rate history like this.
For the Euro to loose the gains it has made this year so far would not be a ‘rocky road’ it would be financial armageddon. It is true that the Pound will lose some value prior to the general election. This always happens as the markets do not like change or a lack of certainity but is the UK general election the greatest evil on the Euros horizon? I think not. Lets look ahead for a moment and hot on the heels of our election we have Turkey’s election on 7th of June. Turkey is on the road to joining the Euro and is having some fairly turbulent times. Between the 20th of September and 11th of October Portual go to the polls and on 20th of December it is Spain’s election.
Spain and Portugal are suffering under some fairly draconian austerity measures rather like someone else, let me think, oh yes Greece. So here is the gordian knot that the Eurozone is trying to untangle. How do you negotiate with Greece, prevening a ‘Grexit’ without showing a green light to every anti austerity political party in Spain and Portugal. You can bet anything you like that they are watching the concessions that Greece wins with avid attention.
The gist of the articles is that they want you to rush out and buy your travel money there and then but looking at what their ‘expert’ actually says is this “Mark Bodega, director at HiFX said: ‘General Elections undoubtedly cause uncertainty. They are a risk event and so create volatility in the currency markets. ‘This year’s General Election is one of the most open many of us will have seen in our lifetimes. For the short to medium time, we expect the rate of sterling against euro to remain steady at around 1.37′”. So that is “remain steady at around 1.37” AND “Experts warn sterling set for rocky ride ahead”? Is that what they call hedging their bets? Ironically €1.37 is above where the rate sits right now at €1.366 but we will give themt he benifit of the rounding up.
If fully concede that the markets do not like unknown factors, that is a given and that the rate always wobbles before a UK general election that is also true. What is also true is that the Eurozone has bigger problems than who is going to be in the next UK coalition and the world is not going to end on the 7th of May (if it does please feel free to blame me.)