Is It A Good Time to Buy Euros?

In this post I aim to answer the question: is it a good time to buy euros? This might be of interest to you if you’re considering a holiday in Europe, and want to get the best exchange rate when you change currencies, or even if you’re emigrating to the continent, and want the best price when you buy your new home. 

Reading from The UK? 

If you’re reading this from the UK and have UK pounds, it’s arguably the best time to buy euros in 18 months right now. This is because the pound-to-euro exchange rate is 1.20: a rate it hasn’t been at since before September 2010. So if you change UK pounds into euros at the moment, you get a higher euro total than at any point during all of 2011. This is clearly advantageous whether you’re just taking a break in Paris or Madrid, or planning to relocate entirely.

The pound is high against the euro right now because of the Eurozone debt crisis. Spain held a general strike this week, highlighting opposition among the people there to the spending cuts the government plans to make. Unfortunately, without these cuts Spain faces losing confidence from its international investors, and that would force it to request an EU bailout like Greece or Portugal. Hence, this difficult situation has caused pound strength.

Reading from The US? 

If you’re reading this from the US on the other hand and plan to change US dollars, the rate is not quite as good as the UK pound right now, but still favourable. Last May, the US dollar reached its lowest point against the euro since the financial collapse, at about 0.67. This means that for every 1.00 US dollar you had, you got just 0.67 euros in return.

Since then though, the US dollar has picked up a lot of ground, and today stands eight cents higher at 0.75 against the euro. If you’re changing tens of thousands of dollars then, those 8 cents obviously add up to a huge improvement in the euro total you can expect.

The US dollar has gained against the euro since May for the same reason as the pound: trouble in the Eurozone. Concerns that Greece might exit the euro for instance, or that Portugal will need further financial aid, encourage financial markets to invest in economies that seem more stable. Given the improving outlook in the US, that has hence favoured the dollar.

So What Next? 

Hence this is a good time to buy euros. The question then is: what do you do next if you decide to change currencies?

If you’re looking for holiday money, the next step is to research what bureau de changes are available in your local area and give them a call. Find out which one is offering the best rate, so that when you change currencies (be that UK pounds or US dollars into euros) you get the highest possible euro total when all’s said and done.

If on the other hand you’re planning to emigrate to Europe, it might be more helpful for you to set up a forward contract. Forward contracts let you lock in the present exchange rate, so that although you might be moving abroad up to two years in the future, you can still get the same rate as today. The benefit of this of course, is that it protects you against declines in the exchange rate closer to the time you move. However, forward contracts can only be used if you’re transferring more than five thousand pounds.