An analysis of the Sterling (GBP) to Euro (EUR) rate of exchange.

Rather than burrowing in to all of the minutiae of economic theory and opinion on how the current state of both the UK and the European economies are playing out and will continue to play out for these major global currencies over the course of the year to come, we thought we'd outline our observations as to the seasonal, anecdotal changes that animate this currency pair.

One of the overriding concerns of businesses and individuals holding sterling and needing to pay someone in euros, or earning in euros and wanting to realise those earnings back in sterling, is the question of when to exchange. We will not be suggesting any sort of dependable or infallible approach to this per se. For one thing we can't, but also because the markets and the environment for the exchange of one currency in to another is constantly and ever changing and therefore cannot and should not be viewed in isolation.

Having said that, in our experience, there are certain times of the year when one currency might be more in demand than others and there are certain signals to the market which tend to imply certain outcomes in terms of a currency's movement up or down.

There are times of the month and even times of the week where, anecdotally, if the rate is going to move in one direction or the other it is likely to be on those days, during those weeks or over the course of those periods.

None of our discussion means to suggest that we would bet one way or the other on a rate moving in one direction or another, but, it is perfectly reasonable to say that certain information released to the market usually and could quite possibly induce certain market participants to conclude certain future outcomes or characteristics in behaviour and these are what we will be looking at, both the potential and usual outcomes and characteristics and converse effects of expectations failing to be met.

Every year we hear the phrase 'Europe goes on holiday'. This is typically during the month of August.

Whether it is Parisian bankers relaxing in the Dordogne, or German financiers sunning themselves on the Western Cape, the four weeks from the end of July tends to be when production halts, industrial activity lessens and the markets become more subdued.

Of course one cannot account for random acts or events and, when the markets are away, one might very well see far sharper shocks, climbs and falls, should events prompt those who are focused to react quickly and at scale at the expense of their absentee counter-parties.

We normally see an increase in offers on property in the final quarter of the year.

Those who have holidayed in France may return to the UK and decide they want to take the plunge and realise their dream of owning a slice of Riviera life.

Alpine resorts do well in the lead up to the firm summer months probably because those passionate about owning a little chalet or apartment in a ski resort have visited during the crispness of Spring.

The 12 weeks lead time between the signing of a 'compromis de vente' and the 'acte de vent' as part of the buying process in. France ties in precisely with the advent of fourth quarter in the UK; so, we can identify how rate volatility in either direction may affect those buying and selling on the continent.

Almost like clock work and for as long as any of our team can recall, sterling softens during the summer months.

One theory is that fund managers going away on holiday would rather maintain positions in currencies other than GBP. It is not that they dislike GBP intrinsically, but, rather that USD denominated assets are more stable and more liquid and they can rely on the fact that the state of their portfolio is less likely to be remarkably different when they comes back from holls.

On the flip side, once we enter the fourth quarter of the year many businesses are gearing up to their most active trading time...the festive holidays.

Depending on the weather over the summer months, retailers literally take stock. They will have placed tentative orders earlier in the year for delivery of their Christmas stock. Maybe they visited a trade show on the continent or further afield.

October is a very active month for those buying and completing on property as well as for retailers looking to position themselves and their wears favourably for the trundle towards year end.

What we are saying here is not particularly revelatory. Take the fact that the Spring is very much the busiest time for estate agents. Given a run of the mill conveyancing matter takes a matter of months and the fact that mortgage applications/decisions are not instant, it is perfectly obvious that completions take place over the summer, hence there is less activity as we enter autumn.

So, sterling seems to become more animated as we approach the end of the year.

We put this down to increased activity at a retail and consumer level.

The bouyancy that tends to animate sterling after the New Year holidays can be tied more precisely to an increase in service activity, one hopes.

Many companies have their year end as the first calendar quarter turns in to the second.

Tax returns, insurance policies, reinsurance and a reflection on and digestion of sales over the previous frantic quarter, mean that although many business may be quieter in terms of sales, their support services are beavering away moving money, reconciling balances and accounting for 'x' or 'y'.

So, the New Year tends to see the pound strengthen when data is positive. You can rightly conclude that disappointing or underwhelming information has the opposite effect, notionally.

Interestingly, that strengthening of the pound does not actually, or as far as we tend to see, translate in to businesses buying currency at a better price for the year ahead.

It is a dicotomy. The better value rate of exchange comes at a time when businesses are either reiling from poor performance (and should therefore be looking to make back any loss of margin) or celebrating beating expectations (and should be committing to a fixed currency spend for the seasons ahead).

Not enough businesses - who can - make use of the tools available to them which can help protect profit margin.

We think this is in fact because, noticing the rate has improved and bouyed by the optimisim that is palpable at the beginning of any new year, they infer this positivity will translate in to the rate for a prolonged period. Basically, many businesses think the rate will just continue to get better.

We are delighted when a corporate client sets their calculative break-even currency rate at the beginning of the year, however, if that is not matched by the use of a product which hedges off exposure to any subsequent (and largely inevitable) drop in the rate, setting your currency rate is meaningless.

One thing we advise is that businesses incorporate a healthy buffer in to their rate calculations.

Here is an example of what we mean:

A business selling Christmas decorations has, by January, a healthy bank balance.

The rate of exchange is up and sterling is in their favour.

They know what stock is their best seller and, at this point in the year, they may very well already know what lines they want to restock for next year.

This business does not know that they can buy all the currency they will need to purchase this stock now, but not have to pay for it until the supplier invoices.

By purchasing the currency, but not necessarily the stock, they have fixed their currency margin for the year head.

Yes, it could well be the case that the foreign currency cost of that stock goes up or down over the course of the year depending on the whim (we suppose) of the manufacturer or supplier; but, if it does not, then this business, having fixed their rate of exchange, has increased their margin by the extent to which the rate of exchange is higher than when they bought the stock last year.

Too many businesses get caught out by the mere fact that a rate which goes up quickly can go down just as quickly.

These businesses are not currency speculators.

We are a currency broker and we would never be drawn on speculating on the rate.

So, why do these companies not fix, cement, crystalise and lock their rate when they can, when they have the cash in the bank and when they can see the rate is better?

The simple answer is, in our view, they are using their bank and simply do not realise the simple contracts and tools available to them from suppliers like Prime Cap.

So, we have meandered through a years' worth of peaks and troughs.

Now we come to concerns facing individuals who do not have the luxury of time.

Someone needs to pay their tax by the end of January. They are presented with the sterling figure they owe only a matter of weeks before the deadline.

If they live in the UK but have capital outside the UK it is not uncommon that they might want to pay their UK tax bill with their foreign currency savings.

In fact, they might be paid in a foreign currency as is the case for a lot of the lawyers we have as personal clients.

A client approaches Prime Cap on 10th of January and knows they need to have executed and settled a transaction by 31st.

The first thing we do, and without even a sniff of vitriol, is suggest that the client consider their tax position as early in the year a possible, especially if they have foreseeable liabilities. The release of their P60 in May is the ideal time to consider preparing for a payment.

Remember, in January the pound tends to be higher(ish). By leaving their exchange until January our client who wants to pay their sterling tax bill using US dollars has picked perhaps the worst time of year for rate competition.

'If I wait until....Thursday....will the rate be better?'

The balanced and no-nonsense currency broker, sympathetic though they may be, replies 'there is simply no way of knowing'.

The foolish and inexperienced recent graduate who sits behind the dealing desk at a 'factory firm' tries to spi