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Pound falls as UK faces triple-dip recession

The possibility of a triple-dip recession in the UK forced the pound down against both the euro and US dollar this week, putting an end to three weeks of gains against the common currency.


Welcome to the Pure FX account of the latest changes in the euro exchange rate. This is intended as a brief guide to movements in the euro this week, to put you in the best position for when you exchange currencies.

Latest exchange rate changes

GBPEUR: 1.2527 to 1.2443 (-0.671%)
GBPUSD: 1.5989 to 1.5875 (-0.713%)
EURUSD: 1.2762 to 1.2758 (-0.031%)

The pound lost out to both the euro and US dollar this week, putting an end to three weeks of gains against the common currency, as the Bank of England warns the UK faces a possible triple-dip recession in 2013. This pound loss came in spite of the fact that, meanwhile, the Eurozone officially entered recession this week, contracting –0.1% in Q3. The euro also held its ground against the US dollar, in spite of this news.

What affected the exchange rate this week

The pound fell this week, chiefly as the Bank of England used its Quarterly Inflation Report to warn of continued UK economic weakness to come. BoE governor Mervyn King said that the 1.0% growth the UK enjoyed between July and September will be a one-off, and that instead the prognosis is for “a long and winding road to recovery.” Indeed, the latest data points to just this conclusion, with retail sales sliding –0.8% in October, and inflation rising to 2.7%.

This pound fall came in spite of the fact that, as I mention, the Eurozone entered recession in Q3 according to data this week. In fact, remarkably, the euro also stood unchanged against the US dollar too, signalling that the markets have decided simply to ignore the fact. As for the data meanwhile, the currency zone as a whole fell by just –0.1%, with the deepest decline in Holland at 1.1%, offset by +0.2% growth in Germany and France.

How does this affect your currency transfers?

Clearly, this decline in sterling is of benefit if you’re currently in the Eurozone, and wish to transfer money back to a UK bank account. It would also be to your advantage if you run a business in the Eurozone, and wish to import UK goods onto the continent. This is because, as the pound falls, and the euro grows stronger by comparison, you can expect a higher sterling total when you exchange currencies.

What’s going to happen next?

Whether the pound continues to fall depends greatly on UK economic performance in the coming weeks. Inflation, for example, is expected to keep climbing, as energy companies impose large price hikes this month. That will eat into household budgets, and further erode retail spending. Meanwhile, unless the global economy improves, government efforts to turn the UK toward investment-fuelled growth will be frustrated. Hence, the potential for pound weakness is high.

Get in touch: I do hope you’ve enjoyed reading this update. To find how what I’ve talked about here will affect your euro transfers, fill your details into the form below. I’d be delighted to answer any questions you may have.

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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.

Copyright: Peter Lavelle, Pure FX
Category: Expats
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