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Pound hits three week high as UK expands 1.0% in Q3

The UK pound reversed a four-month decline against the euro this week, taking sterling back to a level we last saw in early October.


Welcome to the Pure FX account of changes in the euro exchange rate, covering the 19th to 26th of October 2012. 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

Pound to euro:
Last week: 1.2276
Today: 1.2457
Increase: +1.474%

Pound to US dollar:
Last week: 1.6038
Today: 1.6108
Increase: +0.436%

Euro to US dollar:
Last week: 1.306
Today: 1.2925
Decrease: –1.034%

The UK pound reversed a four-month decline against the euro this week, gaining almost two cents against the common currency. This takes sterling back to a level we last saw in early October, when one pound bought you 1.2460 euros.

What accounts for this pound comeback? It’s almost solely because the UK exited recession this week, expanding 1.0%, above forecasts for a 0.6% advance. This lends hope that the end of the double dip will be permanent, and the UK will continue growing in the last three months of 2012.

In addition, it’s worth noting that the pound also climbed against the US dollar this week, gaining almost half a cent. This puts an end to almost five weeks of losses for the pound against the greenback, since mid-September.

Of course, as with the euro, whether the pound keeps climbing against the US dollar depends greatly on whether the UK continues growing in Q4. While the 1.0% growth we’ve seen this week is unlikely to be repeated, any upward trend would help keep the pound at these levels.

How this affects you

If you intend to relocate to Spain or Portugal, perhaps to buy a property, then this decline in the euro is good news for you. This is because, as the common currency weakens, your savings in pounds go further. Hence, the cost of Spanish or Portuguese property falls in relation.

In addition, given the rising pound, you may wish to take advantage of the current exchange rate, even if you don’t want to transfer your money to your foreign bank account at this time. In this case, what you can do is lock in the present rate with a forward contract.

A forward contract means you get the current rate, but don’t have to transfer your money here and now. Instead, you do it at any time you please in the next two years. The advantage is that you get the present advantageous rate, and so don’t have to worry about where the pound might be later on.

What’s going to happen next

As I mention, whether the pound continues at these levels depends in large part on whether the UK continues to expand. Unfortunately however, there are reasons to think this is less than certain.

For example, the body that releases GDP data, the Office for National Statistics, is notoriously bad at getting it right first time. In the last 51 years, it’s got its first estimate right just 12 out 210 guesses. That could see GDP increase, when the ONS releases its second estimate next month, or equally fall.

Given that, the pound’s present position looks insecure. You may wish to take advantage of a forward contract then, as I mention, to lock in these current gains.

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 in 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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