PureFX

Is The Pound to Euro Foreign Exchange Rate Set to Gain?

Mon 11th June 2012

By Peter Lavelle

In this post I want to answer the question: Is the pound to euro foreign exchange rate set to gain? This might be of interest if you’re planning to emigrate to the Eurozone, or you’re perhaps a business owner involved in imports and exports, and want to get the best exchange rate.

Before I answer this question, it’s important to tell you: no one can know for absolutely sure the future exchange rate. The best anyone can do is look at where the rate is, what’s affecting it, and come to a decision about its future possible direction. Clearly, the more time you spend thinking about this, the more informed your opinion is likely to be. But that said, it’s ultimately guesswork, and it’s best to be cautious about people that say otherwise.

So what’s going to happen to the rate?

In my opinion, the pound looks set to remain at its current levels against the euro (around 1.23-1.24) for the foreseeable future. This is for several reasons. Most important, the Eurozone continues to face the possibility of collapse, which would have dire consequences for the UK. Rather than aiding the pound, the prospect of a Eurozone breakup has limited the pound against the euro recently, as the extent of British exposure becomes plain.

Second, the pound could remain limited against the euro because the UK is itself in recession. This provides an obvious disincentive for the markets to invest in the pound, as British prospects (aside from Europe) do not look bright. It would take a sudden increase in growth, and perhaps a change in direction from Chancellor George Osborne, for the pound to gain.

Is the current rate good or not though?

It is, if you compare it to the last 5 years. For instance, at one point in 2011, the pound declined as low as 1.10 against the euro, which by comparison makes 1.24 a great rate. In fact, this is close to the pound best rate against the euro since the financial crash, in 2008. Of course, you could compare the pound to its pre-2008 rates against the euro, which were at 1.50 and higher. Compared to those, the present rate is not so good. But given that we’re unlikely to see those rates again for some time, that isn’t perhaps so useful.

And what’s going to happen in Europe?

Once again, no one knows for sure. Greece could elect an anti-euro government this Sunday, initiating the end of the common currency inside a fortnight, according to the worst case scenario. Or Greece might just keep truckin’ much as it has done since 2010, and the euro endure. For me, the second possibility is more likely.

Get in touch

I do hope this post has been useful.

If you have an questions not answered here, or would like to find out more, don’t hesitate to contact us at foreign exchange specialist Pure FX. One of our specialist dealers would be delighted to provide an in-depth personal response to your query, free of charge.