A euro devaluation against sterling is on the cards, HiFX reports

LONDON | As the markets are rocked by France’s presidential elections and attention continues to linger on Spain, where official figures announced that it is once again in recession, currency specialists HiFX reported on Monday a 175% increase in euro sales.

The move could benefit euro country members’ exports to the United Kingdom but it would hurt the British economy, as 40% of foreign sales go to the European Monetary Union.

Commenting on the rise in euro sales, Mark Bodega, director at HiFX said:

“This movement has occurred in spite of sterling’s performance against the euro over the past 12 months, which on the surface may seem unusual. Normally when sterling strengthens against the euro, we’d expect to see a raft of euro buyers. But at the moment everything is counter-intuitive, so despite the recent movement from 1.16 to 1.22 it’s all euro sellers. Fear is most definitely driving these transactions.” 

A growing numbers of Brits believe that the euro is overvalued and that further drops against sterling are on the cards as a number of euro zone countries are beginning to baulk at drastic belt-tightening measures. The International Monetary Fund (IMF) appears to be casting doubt on the viability of the euro area’s austerity drive, too, a strategy Germany has pushed for as key to fighting the crisis.

As many European governments tackle their deficits, second home owners especially those based overseas have become easy targets for tax increases and as a result many are selling up and returning their assets to the UK. Recent research from HiFX found that one in 10 (11%) Brits who own a property abroad are looking to sell, and 34% are trying to shift a property in Spain where house prices are down 25% since their peak in 2007.

“Due to the current uncertainty in the financial markets, most of our clients are playing it safe and we have seen a 69% increase in the number of buyers hedging their currency purchase through the use of one of more forward contracts. In essence, this means that you can buy the currency now, and pay for it later. If the exchange rate moves at all in that period this will not affect you at all, as you have bought currency at the originally agreed rat,” Bodega explained in a press release.

Last week’s disappointing GDP figure, however, will potentially limit the upside for sterling now until growth returns to the UK. If it doesn’t, HiFX believes the Bank of England could kick start the sterling printing programme again anytime to try and support the economy.