Is it a Good Time to Convert Euros into Pounds Before Moving to London?

The question of whether to convert Euros into Pounds (GBP) before moving to London has been a hot topic, especially with the UK's departure from the EU and the current state of the British Pound. However, it's crucial to understand the context and factors surrounding this decision. As an exchange rate specialist with extensive experience in foreign exchange (FX) and living in expat communities abroad, I offer insights based on reliable data and observations.

Understanding the Current Exchange Rate and Valuation

First and foremost, it is essential to clarify that the British Pound has not been 'collapsing' as the title suggests. In fact, since the Brexit vote last summer, the Sterling vs Euro exchange rate has been relatively stable. This stability is due to several factors including ongoing quantitative easing (QE) measures within the UK after the Brexit vote, which have historically tended to depress Sterling valuation. Moreover, the current valuation remains comparable to the pre-credit crunch era, indicating that the Pound is not undervalued against the Euro.

Factors Influencing Current Currency Valuations

Several key factors are contributing to the current state of the Sterling:

1. Property Market

Interestingly, the UK property market has seen a fall in valuations for three consecutive months, even amidst a QE round and sufficient liquidity in the UK banking system. This trend suggests a downturn in the housing market, which could be linked to tax changes and inflation staying above target levels. Under such conditions, a 'flash crash' in the UK property market appears increasingly possible, affecting consumer confidence and potentially leading to lower consumer spending and reduced construction activity. This could result in economic recession.

2. Political Factors and Recent Elections

The recent election results in the UK further underscored the Conservative party's approach to fiscal policy, which is less profligate than other potential alternatives. This shift may have weakened Sterling, as more restrained economic policies typically affect currency valuation.

3. Eurozone Stability and Future Prospects

Looking to the broader European context, the primary pre-Brexit threats to the EU, such as the weakness of various banks, the high level of Southern European debt, and the looming threat of a Greek exit (Grexit), seem no more likely to materialize in a crisis now than they were a year ago. The election of pro-EU candidate Marcon in France also mitigates some of these risks.

Advice on Timing for Currency Conversion

Given these factors, my advice would be to be cautious and strategic about when to convert Euros into Pounds. A balanced approach would be to convert half of the Euros now and the other half when needed, as this strategy ensures flexibility regardless of future currency fluctuations. Additionally, if you are planning to make large purchases, it might be wise to monitor natural troughs in the exchange rate fluctuation and spread the purchase over time. This approach minimizes regret in either scenario.

Final Thoughts

While some might speculate that the Conservative government has "priced in" a pre-Brexit crash to potentially engineer a desired outcome, it is important to maintain a balanced perspective. The decision to convert Euros into Pounds is complex and should be based on a thorough understanding of current and projected economic conditions. Being prepared and patient is key to navigating this transition successfully.