Foreign currency deposits to the equivalent of €100,000 can generally be believed to be secure from loss of capital if the bank fails. The exchange rate of the foreign currency and Euro fluctuates. It is possible to make a capital loss if the foreign currency falls in value against the Euro. The opposite is also true; you can make a capital gain if the foreign currency moves higher against the Euro.
The US Dollar has strengthened recently after the US central bank (the Fed) indicated it would taper off their monetary stimulus package “in line with data”. This means as housing, labour and economic data continues to improve; the Fed will ease off injecting stimulus into the US economy. This sentiment has led to the Dollar strengthening against the Euro. People, who bought Dollars above current levels, should pay attention to moves lower on the Euro v Dollar to lock in the growth.
In the UK, there is much speculation over what the new Bank of England governor may do when he takes over in July. The incumbent, Mervin King was quite conservative, keeping a narrow inflationary focus and keeping the core base lending rate at 0.25% since November 2008. There is a consensus building in the market, that he may introduce additional stimulus measures to boost UK exports, propel GDP and improve job’s growth. A wider remit in terms of policy and the potential for further quantitative easing could see the Euro v Sterling trade higher.
The Euro area economy has shown signs of stabilisation but an upturn does not seem imminent. Eurozone markets have not been immune to global events. The euro has retraced an earlier rally and peripheral bonds have been hit by the general sell-off in government bonds and by weakness in risk assets.
Depositors, who diversified into a range of currencies, should consult their financial broker and explore their options; consider how to take advantage of favourable rates and limit their exposure to the Euro zone and decreasing deposit yields.