If you’re planning to buy a ski home within the next year, you’ll want to ensure that your purchasing power isn’t reduced by potentially thousands due to fluctuations in the currency markets.
To do this, consider the impact of the following factors and find out how you can protect your money amid this uncertainty.
The actions of the central banks are affecting currency market movements at the moment. After implementing monetary policy measures due to the pandemic, the likes of the Federal Reserve, Bank of England and European Central bank are now talking about tapering this support as economies recover. However, the banks face a fine balancing act between reducing these measures, whilst still ensuring that the economy is well-supported.
The Federal Reserve are, so far, leading the way with this, which has caused the dollar to strengthen significantly against the pound, euro and other currencies. The Bank of England has displayed signs that it is following suit, with two members voting in favour of an early end to government bond purchases at the last monetary policy meeting. Governor of the Bank of England, Andrew Bailey, recently said that interest rates need to be hiked to combat rising inflation, but the economy is not yet strong enough for this to happen.
The markets expect that the European Central Bank will be the last of these central banks to begin reducing its monetary policy programme. President of the ECB, Christine Lagarde, said recently that “monetary policy must remain focused on steering the economy safely out of the pandemic emergency”. This cautious approach could mean that the euro weakens against the pound and the dollar in the months ahead.
The global energy crisis
Surging gas prices and fuel shortages have caused the pound to weaken in recent days. Due to the UK’s reliance on gas and panic buying at petrol stations, sterling has suffered more than other currencies. The euro and the dollar have strengthened due to their ‘safe-haven’ status in this instance, meaning that they are currencies that investors turn to in times of crisis. The currency markets will continue to react to the crisis as it unfolds.
As we go into winter, the energy crisis, COVID-19 and in the UK, Brexit, could all continue to have an impact on economies. Economic data releases, such as GDP, will continue to be watched closely for an indication of how these economies are performing. Any data that misses or exceeds expectations could have an impact on currencies. These figures will also be crucial in determining the actions of central banks.
How to protect your money
All of these factors and more can cause exchange rates to change on a daily and sometimes hourly basis. So, if you’re paying for a ski property abroad and transferring money between currencies, these fluctuating exchange rates could change the price of your property, potentially by thousands.
As an international property buyer, the safest way to protect your money is by using a forward contract, which locks in the same exchange rate for up to a year. If you lock this in soon, you will have the peace of mind that your money will be unaffected, whatever happens. Find out more here.
For more information about purchasing your perfect ski home abroad, don’t miss your free Buying Guides, covering the purchase process itself, the legalities, finances and more.