As the euro hits new lows against the pound, savvy holiday-makers might want to consider purchasing their travel money now. The pound has recently surged to a 22-month high, while the euro has plummeted following French President Emmanuel Macron’s call for new parliamentary elections. With your money going further abroad, is it time to act?
The euro has fallen to its weakest level since August 2022, with the pound rising to €1.18 on Monday, a significant increase since former Prime Minister Liz Truss’s mini-budget triggered a drop in sterling.
For those planning trips to Europe, capitalizing on the strong pound—relative to the weakened euro—could be advantageous. Currency markets are highly volatile, making it risky to wait for potentially better rates.
Recent declines in the euro are attributed to expectations of faster interest rate cuts in the eurozone compared to other advanced economies. Additionally, recent European elections results have further accelerated this trend.
The euro’s value hit a near-monthly low after Macron’s call for new elections, following a disappointing performance in the European Parliament elections by his party. Marine Le Pen’s hard-right National Rally emerged as a strong contender, spooking the markets.
Sam Richardson, deputy editor at Which? Money, suggests that with the current favorable exchange rate, it might be prudent to buy travel money now if you’re planning a trip soon. He advises against last-minute purchases at airport bureaux de change due to their typically unfavorable rates. Instead, it’s better to compare rates online and consider any additional fees.
Richardson also recommends considering alternatives such as credit or debit cards with no foreign transaction fees. These options often provide better conversion rates and avoid the issue of unused currency after your trip.
The political instability in Europe, heightened by the call for a snap election in France and the rise of EU-sceptic parties, has unsettled markets. Bill Blain, a market strategist at Wind Shift Capital, points out that growing political uncertainty and internal dissent are unsettling European bond markets, diminishing the prospects of a unified monetary and fiscal union.
The pound has also gained strength following JP Morgan’s analysis, which suggests that a Labour victory in the upcoming UK general election could benefit financial markets. According to Bloomberg, a Labour majority would be the most favorable outcome for the pound, while a hung parliament is seen as less desirable.
Matthew Ryan, head of market strategy at Ebury, notes that the anticipation of a significant Labour majority is positively impacting sterling, which has recently surpassed its previous range against the euro. This shift reflects both the residual impact of Liz Truss’s budget and a move towards political moderation under Keir Starmer.
Currently, £845 buys €1,000, whereas a few weeks ago, that amount would have cost £866. With the euro expected to recover once market uncertainties resolve, buying euros now could save money for future European trips.
Sterling is approximately 6% stronger compared to its value following the 2022 mini-budget. Analysts predict further declines in the euro, potentially providing a better opportunity to buy currency in the near future.
Chris Turner, global head of markets at ING, anticipates continued divergence between the UK and French political scenes, which might lead to slight further declines in EUR/GBP rates. However, this opportunity may diminish soon with the Bank of England’s anticipated interest rate decision.
In addition to Europe, the strong pound benefits travelers to other regions. The Indian rupee has weakened by around 4% this year, making £1,000 equivalent to INR 106,044.27, compared to INR 103,535.45 just a month ago. Similarly, the pound has gained against the Swiss franc, with £1,000 fetching 1,138.68 Swiss Francs.
Conversely, the pound has weakened against the US dollar due to robust employment figures in the US, which have dampened expectations for imminent Federal Reserve rate cuts. Currently, £1,000 exchanges for $1,272.
For now, those planning summer vacations may find it beneficial to lock in favorable exchange rates, keeping in mind the dynamic nature of currency markets.