Should I buy euros for my summer holiday before or after the election?

The prudent policy is to hedge your bets

Cash in: hedge your bets when buying euros (AFP/Getty)

Q. We are going on holiday to the eurozone in early June. The exchange rate is quite good at the moment and I am tempted to get some euros now. However, with a General Election looming on 7 May, the rate could go up or down. A difficult one to call, but what do you think about the future exchange rate and is it a good idea to get my euros now?

Chris Whalley, Bedfordshire

A. This spring, the pound is more powerful against the euro than it has been for years. The markets regard the UK as a sound location to store wealth. This has the benefit of making holidays in the eurozone cheaper. Compared with a year ago, you get 12 per cent more for each £1 right now.

The financial markets that decide exchange rates are sensitive to all kinds of developments, from natural disasters to election results. Investors don't generally like precarious politics. But they can read the newspaper coverage of this closely fought campaign, and the opinion polls that suggest another hung parliament is a likely result on 7 May.

The current value of the pound has some uncertainty already priced in. An election result that the market regards as unfavourable for the economy, such as a strong showing by UKIP, could see sterling weaken if it is perceived to increase the likelihood of a UK exit from the EU.

Do nothing, and you may see the pound slump on 8 May; alternatively, with a clear majority for one of the major parties, sterling might soar. The prudent policy is to hedge your bets: estimate what you need, then buy half now and half after the election. Don't confuse holiday cash with an opportunity for speculation.