Mar 30, 2020 / CURRENCY

Coronavirus’ Impact on the Currency Markets

Coronavirus has had a significant impact on the international currency markets – but what does this mean for property buyers?

We have often written about the importance of planning your currency transfers as no-one can truly predict where the currency markets are going. The economic disruption from coronavirus is a case in point – none of the banks could possibly have expected this to appear from nowhere. So what can property buyers and sellers do in times like these? We look at how covid-19 has affected the main currencies of major ski markets and what it could mean for you.

Four-bedroom chalet in Chamonix

EUR: Euro benefits as capital returns to Eurozone

It’s certainly been an interesting time for the euro. It has actually spent much of the past few weeks up against the pound and US, Singapore and Hong Kong dollars – significantly so in the case of the US dollar. This might seem counterintuitive as Europe has turned into one of the epicentres of the crisis and was already suffering from poor performance in major economies like Germany. It’s largely thought to be because euro is a borrowing currency: one in which investors borrow to fund stocks, so a sell-off means capital actually returns to the Eurozone.

However, over the last few days we’ve seen a reversal of fortunes, perhaps as the movement from investors starts to calm and worries over the economic recovery of the Eurozone set in. The European Central Bank’s March economic bulletin stressed that recovery growth would only be ‘modest’ in the near future, revising GDP growth forecasts downward by 0.3%.

CHF: Swiss franc gains against major Asian currencies

It might come as a surprise to some that the Swiss franc does not always follow the pattern of the euro religiously; it was in fact unpegged some years ago by the country’s central bank. It’s been a choppy last few days against the euro. Between the 20th and 22nd March, the franc has fallen by 0.8%, risen again by 0.5%, fallen again by 0.4% and risen again by 0.7%. Against the pound, it was a different story, holding quite flat until a spike on the 23rd and a choppy decline afterward, as Switzerland’s own coronavirus crisis accelerated and its central bank re-emphasised that it would not be cutting interest rates.

In Asia, it was another story again, with the franc gaining against both the Singapore and Hong Kong dollar. Singapore suffered its first deflation since 2010, with The Straits Times saying the city state’s economy could see the biggest annual decline in a decade.

Three-bedroom apartment in Villars.

USD: Dollar benefits from safe haven status – but for how long?

Earlier this month, the dollar soared to an incredible 35-year high against sterling, with companies and investors fleeing to what is one of the world’s biggest safe haven currencies. However, as the crisis continues to grow in America, the pound has seen something of a recovery. Whether this will be temporary remains to be seen.

The same story goes for the euro, with the dollar hitting 0.938 against the single currency in the last week of March. Since then, it has drifted downward, with fears over America becoming a new epicentre of the crisis and poor jobs data putting pressure on the markets.

The Hong Kong dollar, pegged in a narrow range against the US dollar, has also benefited from this strength over the last few days. SGD saw its biggest one-day jump since 2016 after the Singaporean government announced a second financial stimulus package to prop up its economy.

Four-bedroom duplex in Colorado

What does this mean for ski property buyers?

None of this up-and-down over the last few weeks could possibly have been predicted by any of the major banks’ forecasts over the last quarter.

It has left many blindsided in many ways – and only goes to emphasise that taking a chance on the currency market is extremely, extremely risky. Anyone in mid-purchase now who did not plan ahead could face the prospect of their home costing thousands more. The example of the changes in Swiss franc over 20-22nd March show how, depending on what time of the day you sent your money, the final price could have been significantly different.

No-one knows how long this will last for, and the economic aftershock will continue for quite some time after restrictions are lifted. If you’re looking to buy this year, or over the next coming few years, you need to plan how you’re going to send your money safely.

For many people, that means a forward contract. This locks in the day’s exchange rate for the next twelve months. Anyone who had done so when the dollar leapt to a 35-year high, for instance, would have guaranteed that rate for themselves for the next year, even when the live markets drop.

In many ways, the problem is complex, but the solution is simple: removing your money from the live exchange markets. Learn more about how to buy safely in this volatile time in the Property Buyer’s Guide to Currency.