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Pound to euro hits 22-month high despite UK recession

The pound hit its highest point against the euro in 22 months this week, in spite of the fact that the UK re-entered recession.

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Here is my latest update of the British pound to euro exchange rate, covering the 20th to 27th April 2012. This is intended as a brief guide to what’s affected the exchange rate this past week as well as what might happen next, to help you decide if now is the best time for you to change currencies.

Pound to euro:

+0.66% weekly increase.
1.2293 (1.2212 a week ago.)

+2.79% monthly increase.
1.2293 (1.196 a month ago.)

This week:

1. The pound held at its highest rate against the euro in 22 months this week, in spite of the fact that the UK officially re-entered recession. If nothing else, this reflects just how low confidence is in the euro right now.

2. Francois Hollande won the first round of the French presidential election, stoking fears off a showdown between him and Angela Merkel as he criticises the austerity-led approach.

3. The Dutch government collapsed over disagreements about spending cuts, lending further strength to the idea that an austerity backlash is making its way across Europe.

4. Credit ratings agency Standard & Poor’s slashed its Spanish rating, turning attention once again to the dire economic straits in which Spain finds itself. This contributed to euro weakness.

It’s not the first time I’ve made this comment, but right now the financial markets are about who’s doing least worst, rather than choosing the actual best place to put funds. Hence, in spite of the fact that the UK entered its first double-dip recession since 1975, the pound in fact gained against the euro this week, closing in on the symbolic 1.23 point.

This is because, though George Osborne evidently couldn’t manage his way out of a paper bag, tensions in the eurozone escalated once again this week, as French presidential candidate Francois Hollande took fire at German Chancellor Angela Merkel’s austerity-dominated approach to the crisis. Of course, the Franco-German alliance is the engine of Eurozone growth, meaning that this conflict has put the future direction of the continent into doubt. Hence the weakening euro.

Next week:

1. The second round of the French presidential election is held next Sunday, meaning we’ll find out then if Mrs. Merkel must contend with a more growth-oriented President Hollande.

2. The crisis in Spain will continue to fester in the background, as recent figures put unemployment at a horrendous 24.0%.

3. The latest German manufacturing figures are released, which Mrs. Merkel will hope reveal a pick-up from the recent contraction. This too might boost the euro.

4. The latest UK services data is released which, accounting for about 70.0% of UK output, will need to be impressive if the UK is to make short work of its present recession.

I will of course return with my next update next week.

If you have any questions about changing currencies or transferring money abroad in the meantime, don’t hesitate to leave a reply in the box below. I’d be delighted to provide an in-depth personal answer to your enquiry, free of charge.





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Pure FX

Peter Lavelle is an economist at foreign exchange broker Pure FX. For a free no-obligation quote regarding changing currencies, get in touch at foreign exchange specialist Pure FX.
Website: http://www.purefx.co.uk/landing-page-iberosphere/

Copyright: Peter Lavelle, Pure FX
Category: Expats
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5 Comments for “Pound to euro hits 22-month high despite UK recession”

  1. Hi Peter,

    Many thanks for your analysis.

    How do you see the pound vs the Canadian dollar over the next 6-12 months? the exchange used to be $2 for £1. Now, you get $1.60ish for £1. Any chance to see the pound getting stronger ?

    I look forward to reading your analysis.

    Keep up the good work!

    Best regards,

    Gerry

    • Hi Gerry,

      Thanks for getting in touch!

      You’re right – the pound-to-Canadian dollar took the same dive as the pound-to-euro, in the immediate aftermath of the financial crash. That looks to be a semi-permanent thing, and I wouldn’t expect to see GBPCAD at $2.00 for a long time at this point.

      That aside though, that doesn’t mean the pound can’t make gains against the Canadian dollar in the meantime, as we’ve seen with the euro. In fact, the 1.61 interbank rate for GBPCAD right now is the highest the pound has been against CAD since late 2011.

      This is all because of risk aversion, and the fact that, compared to the Eurozone, Britain remains a stable and reliable place to put funds in spite of the fact that it’s in recession. That means it’s possible the GBPCAD could continue to climb in the short-to-medium term.

      Of course, this is just my feeling as someone that works in the industry, and shouldn’t be taken as legal guidance.

      Do you have a transfer lined up? If so, feel free to email me at peter.lavelle@purefx.co.uk and I can forward your details to one of our dealers, who can help set out your options with you.

      I hope that’s helpful, and look forward to hearing back,

      Peter

      Peter Lavelle
      Pure FX
      http://www.purefx.co.uk
      peter.lavelle@purefx.co.uk

  2. I keep watching mesmerized the relentless rise in the pound. I guess the Uk’s dwindling band of manufacturing exporters will be chaffed by the news. I expect a post-olympic bust.

  3. Hi Peter, So as I need to transfer GBP to Euros ove the next month, would you advise me to wait till next weekend to see if Holland is elected? It seems this may lead to a better rate for me. I just did a fist transfer at 1.22. Not bad, but would like better!
    Alison

    • Hi Alison,

      Thanks for getting in touch!

      I apologise for the delay in getting back to you, but I’ve just returned from a brief break in Andalucia.

      I suppose you know by now, but Francois Hollande was indeed elected President of France on Sunday. The interesting thing though is that this had almost no influence on the rate, as his victory had long been “priced in” to the value of the euro against the pound. (In other words, the decline in the euro that might have came after Hollande’s victory was integrated beforehand.)

      Instead, it was Greece, and the electoral victory there of parties that favour leaving the euro, that has seen the pound climb to 1.2470 at the time of writing. This trend could well continue, if it starts to look more likely that Greece will in fact take the plunge, and re-instate the drachma. (Though this is just my opinion as someone that works in the industry, and shouldn’t be taken as legal guidance.)

      Do you still need to make your transfer? If so, feel free to email me at peter.lavelle@purefx.co.uk and I can forward your details to one of our dealers, who can help you in more detail.

      I hope that’s helpful, and look forward to hearing back,

      Peter

      Peter Lavelle
      Pure FX
      http://www.purefx.co.uk
      peter.lavelle@purefx.co.uk

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