It is very encouraging to see the Czech and Slovakian Crown, Polish Zloty, and the Euro all stronger against the pound making future resales even more attractive.

I appreciate there are many factors influencing the currency markets but is it fair to say that the growth of these countries play a big part and it is unlikely to head the other way soon?

I know the theory is not to worry too much about exchange rates since long term growth should dwarf any influences, particularly if you are cost neutral in the same currency. However 2 things are now impacting this theory, shortfall in net income lead to UK funds to support operating costs, and poorer exchange rate.

If these currencies are likely to get stronger then I guess the argument is still to hold for good gains, however if they move back to where they were then selling soon might be more attractive. Not sure where you reinvest though.

So, which is it, continued strengthening of these currencies or weakening over the next few years eroding any selling profits?

Look forward to you thoughts.

Regards

Alan of Aberdeen

Hi Alan

This is a very good question.

The FT on Friday - in the form of Martin Wolf - was talking about Sterling become the next dollar.

This means a sustained fall in the pound vs the Euro.

It has had me thinking all weekend about this.

I think that this is not a speculation issue - but it now a 're-adjustment' and this will take place due to the difference between the economies and the interest rate paths of the central banks.

If this is true - then the logical thing to do would be to transfer your liquid assets into Euros as quickly as possible - so that the Euro value of your Pounds remains constant - especially if you are going to buy (or in the future buy or make further payments) against either Euro related or Euro denominated property.

Equally, if you are buying in Euros or a Euro related currency - then getting your mortgage in the local currency is going to be even more important - as refinancing in the UK (ie Sterling) will give you fewer Euros in the future.

We know that getting mortgages in our key markets is only going to become more important - so it is a key priority with PS to keep building the relationships and developing the services for our clients.

These are my thoughts so far....

Here is the FT article...

http: / /www .ft .com /cms /s /0 /996a30e8 -bfb3 -11dc -8052 -0000779fd2ac .html

Cheers
Neil

This is an impossible question to answer and I would really hesitate to put money in any one currency or another. I remember a couple of years ago when the pound hit its previous low against the Euro (around 1.33 from memory) and lots of people then were calling its further decline. And it bounced back and apart from a short trip to around 1.50 it's traded at between 1.35 and 1.45 ever since..........until now.

Look also at the dollar. How long ago was it when lots of "experts" were forecasting $2.40 to the pound. It now looks like getting back to the $1.75 level we were used to. Or maybe not.

The reality is nobody knows. I think it's the reluctance of the European Bank to lower interest rates historically that's behind the current deterioration in sterling as the markets see lower interest rates coming in the UK and not Europe for the next 6 months at least. But that could change and all bets would be off again.

So I'm happy taking the risk of holding cash and investments in the UK with a decent spread of Euro and dollar investments as well.

Hi Huw

You are quite right - if you don't buy the argument of a steady fall then the only thing to do is spread your assets between the different currencies.

The only difference would be if you know that you have a large payment coming up in Euros - you might want to make sure you can cover that payment now - at today's exchange rate - rather than risk a further fall.

This isn't so much about knowing which way it will go - it is just a sensible management to enable you to meet your financial commitments.

Cheers
Neil

Neil / Huw - really appreciate your valued thoughts, thanks. Some more thoughts then:

I am still not clear if the primary driver for the Polish Czech and Slovakian currency is good performance of that country or the weakening pound. If it’s the first then the revised rate is more likely to hold up over time rather than follow the fluctuations of sterling is it not?

I raised this issue following an assessment of my portfolio using the online tool, which is very useful by the way and I recommend to anyone who has not tried it. It shows good growth forecast as expected but the negative cashflow figures are a little concerning. So I am just grappling with the idea of selling a unit later this year, taking advantage of the good exchange rate, to bolster the future cashflow effort and backfill an investment in the Selene deal ( see thread Sell Krakow for Sofia ).

Buying into Sofia (in Euros) is similar to Neil’s recommendation to move assets into Euros is it not?

Regards
Alan of Aberdeen

>> I am still not clear if the primary driver for the Polish Czech and Slovakian currency is good performance of that country or the weakening pound. If it’s the first then the revised rate is more likely to hold up over time rather than follow the fluctuations of sterling is it not? <<

IMHO its a combination of:

- The ever changing expectations of interest rates between the economies (driven by its underlying performance) this will go up and down driving the exchange rate.

- Strong trend of FDI which should continue and, I would expect, keep the currency strong.

- Speculators - Banks, Hedge Funds etc.

Depending who you ask you will get different opinions as to which of these has been more influential over the last year, dont know, but I would not underestimate the Speculators!

Ill check out the online tool, sounds interesting.

Neil I agree. I've just re-mortgaged my French properties and am expecting a large Euro payment to repatriate. So I'm hoping the Euro rate dips temporarily! Unfortunately for me it's recovered slightly in the last few days!

Huw - It's always the way.

I agree with your earlier comments about exchange rates that you can't bank on a short term trend to continue as much as city analysts might have you believe. The Euro is strengthening against the pound based on expected interest rate differentials but it seems to me that the market has already priced in a 0.75% cut of UK interest rates this year. If this is the case I think that the surprise in UK interest rates could only be for UK rates to be higher than expected, and if that happened we'd see a stronger pound again.

I think if you have some assets in euros and debts in Euros then a strenghtening Euro doesn't matter too much and if anything I would be most concerned if the euro was losing value.

Hi Huw

Ah yes! The pound hasn't so much 'recovered' as the Euro Central Bank has decided that things aren't quite so rosy in Euroland after all.

The euro remained under pressure on Thursday after dovish comments from members of the European Central Bank’s governing council appeared to open the door for cuts in eurozone interest rates.

From the FT 17th Jan 08.

So, the decline in the Pound vs Euro is off for the moment then!

Although, given my history of failing to accurately forecast currencies you are advised to ignore all my currency predictions entirely!

Which brings me back to the 'buy property, hold and let it for a long time, then currencies can do what they like but they won't affect my long term asset value'.

Now, that is something I'm confident I can predict. Which, I guess, is why we are where we are.

Cheers
Neil

I did say in my earlier post that their views could change and it looks like that's happened. Definitely right not to second guess the currency markets and take a long term view while fixing currency transactions if you literally can't afford it to go against you.
Huw