Tuesday, June 17, 2014

Italy property falls in price, as pound hits record high versus euro


If you plan to buy a property in Italy, it may interest you to know that they've recently fallen in price, as the pound has hit a record high against the euro. Recently, sterling hit 1.2254 versus the common currency, its highest since January 10th 2013, or 14 months.

By contrast, the pound was as low as 1.1371 in March last year, meaning it's since climbed almost 9 cents. To put this into context, you were to transfer £125,000 to buy an Italian property, you'd now receive +€10,688 more today than in last March!

Why has the pound climbed against the euro?

Sterling has jumped against the euro, because the UK economy is back on form. For instance, unemployment in the UK fell -0.3% in February to 6.9%. Meanwhile, the Bank of England thinks the UK economy will grow +3.1% this year, more than any other major country.

By contrast, the euro has weakened, because inflation in the currency bloc fell to just 0.5% last month stoking fears of Japanese-style deflation and economic stagnation. In fact, prices in Spain, Portugal and Greece are already falling.

How can I get the best exchange rate?

If you like this exchange rate, but don't yet want to transfer your money to Italy, you can use what's called a "forward contract" to freeze the exchange rate where it is. Then, you can transfer your money to Italy to buy a property any time you like in the next 2 years, at this exchange rate. So this means you're guaranteed the good exchange rate.

In addition, if you use a currency broker instead of a bank, you'll get an exchange rate up to 4.0% better, which will add significantly to your euro total.

Will Italy property continue to fall in price, if the pound rises higher?

If the pound strengthens further against the euro, then yes, you can expect to receive an even larger euro total for your savings. Moreover, there's a good chance that the pound will continue to climb.

For one, this is because the Bank of England is forecast to become the first major bank since the financial crash to raise interest rates. When it does so, this will be a huge vote of confidence in the UK economy, and so may lift the pound even further against the euro.

About the author
Peter Lavelle is a currency broker at foreign exchange specialist Pure FX.

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