When you are purchasing property overseas, you are at the mercy of fluctuations in the currency market. We look at the economic and political events that could affect your budget for your ski home. Additionally, we offer advice on how to protect your budget.
One major difference between purchasing a property at home and overseas is that your finances are going to be subject to fluctuations in the currency market. Whether that’s a luxury apartment in Courchevel and you will be exchanging euros or a family home in Aspen and you will be faced with buying dollars.
These fluctuations are caused by economic and geopolitical events, some planned, others unexpected. For example, the recent Budget from the UK chancellor Jeremy Hunt saw the pound hit a three-month high against the euro.
There are also regular economic data releases such as a country’s inflation, GDP or employment data that will cause a currency to strengthen or weaken.
The significance of market fluctuations is that they can alter your budget. For example, say that you were buying a €1,000,000 chalet in France. Then, due to some economic data changing the value of the pound to the euro from €1.50 to €1.10, your ski chalet now costs you an extra £37,500. This change could mean that you have to dig much deeper into your pockets then you were intending to. Or worse, it could put an end to your ski chalet buying plans altogether.
Fortunately, there are ways to safeguard against this, and the one of the ways that you can be prepared is by knowing which significant data releases and events are likely to impact the exchange rate during the course of your property purchase.
What you cannot do, is accurately predict what any data release will be or how it will affect the currencies. Nevertheless, here is what is coming up:
Gross domestic product data (GDP)
With GDP being key to understanding the health of an economic country, this is always one to watch. Each country announces its GDP monthly, first with a preliminary reading and then a final reading.
The UK’s data comes from the Office of National Statistics (ONS).
Data is monthly, quarterly and annually. Watch out for the quarterly reading in particular at the moment because two quarters of ‘negative growth’, i.e. a shrinking economy, officially means a country is in recession. This is likely to weaken your exchange rate.
US employment data
If you are looking to purchase a ski property in America, or you hold dollars, it is worth being aware of two employment data sets. Non-farm payrolls (NFPs) comes out on the first Friday of the month and records how many new have jobs have been created. It’s a great indicator of US economic health. So is JOLTs (job openings and labor turnover), which generally comes out on the first Tuesday of the month.
Other countries also have monthly employment readings, but the US is more influential and, as they say, when the US economy sneezes the global economy catches a cold.
Inflation and interest rate decisions
As you will have noticed, after the invasion of Ukraine inflation shot up to around 8 to 20% in western economies. Without going into all the negative ramifications of inflation, governments charge their central banks with keeping it at around 2%. To keep it in check, the Federal Reserve in the USA, European Central Bank in Europe and Bank of England for the UK try to stop people spending so much – people and business – via monetary policy (see below), i.e. raising and lowering interest rates.
The relationship between inflation, interest rates and exchange rates is complex – but all you really need to know is that what the central bank does on interest rates is extremely influential for currencies.
You can find the dates of upcoming central bank decisions clearly marked on their websites, but they are also very much talked about on any financial or currency website including at Smart Currency Exchange.
Purchasing Managers Index (PMI)
PMI is a survey of business people of how they see the next month or so for business, and is a good index of the direction of economic trends in different industries. It can have a strong impact on currencies, so is something to watch out for.
Elections and referendums are highly influential for currencies and exchange rates too. The currency ‘markets’ (actually, large banks and investors) like stable politics and governments that are good for business.
There are no important elections in the next few months in the UK, US or Europe, but beware, for example, moves towards another Scottish referendum. Whatever your own thoughts, movements like Brexit and independence tend to damage your currency.
How can I protect my budget from the impact of global events?
The potential impact of these events in the next six months on your ski property should not alarm you, so long as you take a proactive stance on currency risk. However, these are just the ones we know about. There are also the ‘black swan’ events – unexpected at the time but entirely rational in hindsight – such as a global pandemic, or war on the edge of Europe.
The best way to ensure that your budget is not at the mercy of exchange rate fluctuations is by contacting a currency specialist, Smart Currency Exchange. With them, you can organise a Forward Contract. This will enable you to lock in an exchange rate for twelve months, so you are not at risk of the market moving against you. Therefore, you will be able to confidently budget for your ski property, as you will have a set and stable exchange rate to work with.