Euro Christmas Cracker

Bank exchange rates are you being ripped off by your bank

The week before Christmas is usually a relatively quiet one in financial markets. After a steady strengthening of GBP against the Euro since the start of December rates have risen from 1.1640 to just shy of 1.20 at the time of writing. Recently currencies have not quite been flat-lining but ranges have been tight and there has been a complete lack of urgency in the markets. Compared with last Friday morning the euro is fractionally down against the US dollar - less than half a cent.

In 2011 Sterling/euro has completed a down-up move that saw it lose ten cents in the first six month of the year and regain them in the second half. The euro is today at levels against the pound and the US dollar similar to those it occupied a year ago. With the media, politicians and investors tearing their hair out over the endless sovereign debt crisis, and with Euroland allegedly on the brink of recession, this is perhaps surprising.

The lack of net movement conceals a major change of heart among investors this summer. For six months they were happy to believe that EU leaders, one way or another, would do what was necessary to prevent the "contagion" of Greece and Portugal's debt troubles spreading elsewhere in the euro zone. A regular diet of summit conferences and agreements created the illusion that Chancellor Merkel, President Sarkozy and their colleagues were working towards a solution that would prevent other countries - especially Spain and Italy - being sucked into the downward spiral.

That confidence evaporated in July, when the EU announced that the financial sector had "indicated its willingness to support Greece on a voluntary basis". Bluntly, the politicians leaned on the holders - mainly banks - of Greek government bonds. They offered them the alternatives of "voluntarily" writing off a proportion of their loans or losing the lot in a messy disorganised default. Banks reluctantly agreed to sign up for a 50% write down of their assets.

There was a large fly in the ointment though. Because the banks losses would be voluntary, there would be no default by Greece. Without a default, bondholders would be unable to claim on any insurance they had bought for protection. Their assumption was that any similar problem in the future - and they had Italy in mind - would be similarly uninsurable. So they set to offloading as much questionable Euroland sovereign debt as they could. Bond prices were pushed down and sovereign borrowing costs went up. This created losses for the banks as the value of their bond holdings were marked down, making them even more reluctant to hang onto such assets.

As the year drew on, people began to think the unthinkable; that the euro could break up. Politicians and the European Central Bank did their best to insist that the single currency was unchangeable and eternal; that break-up was constitutionally forbidden. But the seeds of doubt were germinating.

The path ahead of the euro is littered with stumbling blocks. Whilst it would be ridiculous to predict how the current crisis will end, or what will happen to the euro, it is far easier to imagine troubles in store than it is to foresee a sudden flash of inspiration on the part of Euroland's leaders that would resolve the situation happily. That being the case, it is easier to imagine a further decline for the euro than a miraculous recovery. So to find out how you can protect your transfers from adverse movements in the currency markets and get the best exchange rates contact or call +44 0207 828 7000

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