What does the rest of 2023 hold for exchange rates?

What does the rest of 2023 hold for exchange rates?

The Pound has spent most of 2023 so far trading in a narrow range – a rare period of stability compared to recent years! But what might happen for the rest of the year, and how could it affect your budget if you are buying overseas?

What can you expect?

Of course, exchange rates are impossible to predict – but it’s worth considering the overall picture when you are budgeting, and knowing what’s coming up that could move rates. After all, a swing in the cost of the Euro of 5% will change your sterling budget by over £8,000 in either direction, for a typical €200,000 purchase.

The main factor that has been keeping the Pound higher in 2023, has been the Bank of England’s interest rate rises. Designed to curb inflation, higher interest rates tend to make a country’s currency more attractive to investors, increasing demand for the currency and sending its value higher. Compared to twelve months ago, since Kwasi Kwarteng’s doomed mini-Budget, the Pound is currently trading 4% higher against the Euro and 13% higher against the US Dollar, making overseas properties considerably cheaper than a year ago.

But in reality, most of those gains were in place by June, and since then we have had a ‘steady as she goes’ market to contend with. The end of the climb up for sterling coincided with the Bank of England’s last interest rate rise, having held rates at their most recent meeting after a series of consecutive rises stretching back to late 2021.

Find out more: How does a currency exchange service work?

What is the outlook for the rest of the year?

So, is it all over for the Pound’s prospects for the rest of 2023? Not necessarily – but we are in a tricky position for UK plc. With inflation still running too high, we are seeing those higher interest rates curb our economic growth, and that’s not good news for the Pound. Next week sees the release of several key figures which are all important signals for the economy, and therefore the Pound: unemployment on Tuesday, inflation on Wednesday and retail sales on Friday. Should these show some resilience in the economy, the Pound may have further capacity to strengthen – but should we see unemployment rise, or inflation or retail sales fall significantly, it could be argued that the Pound is vulnerable to take a hit, without the safety net of further interest rate rises to keep it propped up.

The coming weeks could therefore shape the direction of exchange rates for the rest of the year.

If you are looking at buying overseas, or perhaps heading out on a viewing trip this autumn, do get in touch with our specialist currency provider, A Place in the Sun Currency. They will be able to help you navigate the markets and make an educated decision on when to lock in to your exchange rate – which can be done in advance to protect yourself from the risk of falling rates – and their exchange rates could save you a fortune on any given day compared to using your high street bank to buy and transfer your currency. The service is FCA regulated, and you will have your own account manager to help remove the stress of transferring your funds, as well as reducing the cost.

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