By Peter Lavelle at foreign currency broker Pure FX
If you are British and intend to buy a home on the French Riviera or Cote d’Azur this year, it may please you to know that pound looks set to rise against the euro, making a French property more affordable. After all, if sterling climbs, you get a higher euro total when you transfer your money to France. So why might the pound strengthen in 2014? Find out, with the list below.
1. Sterling may rise, because the UK economy is enjoying the “right kind of growth,” according to the Confederation of British Industry (CBI). This is to say, the UK’s economy isn’t being lifted just by rising house prices and debt-fuelled consumer spending, but business investment and exports. This suggests the UK’s economic comeback is sustainable, which could lift the pound.
2. Sterling may rise, as a majority of economists expect it to do so. Just this week for instance, economists Nomura said that “the pound has substantial room to appreciate, in our opinion.” Meanwhile, Mizuho Bank analyst Neil Jones forecast that “I’m still upbeat and looking for the pound higher.” While Peter Kinsella at Commerzbank says “the base case for pound appreciation remains.”
3. The euro may weaken, because last week the European Central Bank said it was “ready and willing to act” to cut interest rates in the Eurozone. This is because inflation in the currency bloc has fallen below 1.0% for 4 months now, raising the risk of deflation and Japanese-style economic stagnation. So to combat this, the ECB may cut interest rates to 0.0%, weakening the euro.
4. The euro could decline, as the Eurozone still faces a number of economic challenges. For instance, unemployment in the currency bloc stands at a record 12.0%. Output in the Eurozone’s factories fell -0.7% in December, casting doubt on the region’s economic comeback. And the Eurozone’s banks may face a shortfall of up to €50.68 billion, according to upcoming stress tests.
5. The euro may fall, because the far right is forecast to win a record number of seats at the European Parliament’s elections in 3 months. For instance, Britain’s own UKIP is expected to do better than any other UK political party. This will cast doubt on the future of the European project, and make it harder for the Eurozone to function, and so may weaken the euro.
With this in mind, look for the pound to rise against the euro in 2014, making a Coast and Country property on the French Riviera or Cote d’Azur better value!