The news that the Bank of England’s (BoE) Monetary Policy Committee (MPC) has raised interest rates to 0.5% has had an immediate impact on the value of the pound, although it perhaps wasn’t what investors had hoped for. Sterling fell 1.18% against the euro and 0.75% against the US dollar in the run up to the announcement. This is likely to be because the market had already priced in the widely anticipated rise, the first increase in a decade.
At home, a positive outcome for savers is contrasted with the increased cost of borrowing and rate-tracker mortgage payments. For anyone making international payments, this may not have been the hoped-for outcome and the lack of unanimous decision and the note of caution in the accompanying statement suggests that any future changes will be gradual. The interest rate remains but one factor in the fortunes of the pound, however. The shadow of Brexit continues to loom large and political uncertainty keeps bubbling under the surface at home and abroad.
If you’re making payments abroad, there are a number of options to help you manage your funds.
If you’ve been waiting for the Bank of England to make their move and have bills to pay, a spot contract may be an appropriate option. Setting up numerous spot contracts each time you want to make a transfer isn’t always the most efficient way to manage your money across borders, but it’s a valuable facility both for urgent payments or for any opportunities the market may present to make the most of your money.
If you’re taking a longer view, a forward contract allows you to fix a prevailing exchange rate in advance which can be held for up to two years. Forward contracts offer peace of mind on the end-value of a currency transfer. They could be useful when purchasing a property and for effective budget planning for property maintenance, as well as living expenses from pension payments. Please note forward contracts may require a deposit.
If you’re hopeful about future increases in the value of the pound but nervous about any potential drop in value, a market order may offer a compromise between a spot and a forward contract. Market orders comprise both limit orders, which allow you to target a specific beneficial exchange rate you want to achieve and stop-loss orders, which identify the worst-case rate that you need to achieve. These two often work together – a desirable rate can be targeted but if the market heads in a different direction, a stop-loss order can help to limit the damage by guaranteeing a minimum rate for the exchange.
Today’s announcement has been a mixed bag, the hoped-for rise in interest rates had been talked up in the market to the point where a unanimous vote had been expected and in the event the pound took a slight fall, but this may yet be considered a positive development for sterling in the longer term. If you’re looking for guidance and more details on the latest available rates, contact our expert team today on +44 (0)207 589 3000 or click here to log in to your account.
For competitive exchange rates, low transfer fees, expert guidance and the special offer of your FIRST TRANSFER FREE call moneycorp on freephone 800 785 012 or visit www.moneycorp.com/portugal-resident