Why is the pound so low against the euro?


The break season is in full swing.

And whether you prefer sun, sand and sangria or meze, Metaxa and mausolea, it can’t have escaped your notice that the whole getting-away-from-it-all events is a lot more expensive at the moment.

At least, that is, if you’re a Brit bound for the eurozone.

The hammer out is touching 10-month lows against the euro at the moment at 1.0981 euros.

And currency strategists at US investment bank Morgan Stanley are constant forecasting that the euro could move «beyond parity» with the produce on the currency markets for the first time ever in early 2018.

The last in the good old days b simultaneously the rate was within even spitting distance of that was back in 2008, when it was languishing at on every side 1.0200 euros.

Of course, there have been well-publicised reasons, even in the the past year, when people have got less than one euro to the produce at some currency exchanges.

But if that barrier were breached on the wholesale peddles, it would be a «hugely important psychological» event, one unheard-of in the currency’s 18-year yesterday.

Of course, every cloud, as they say: the weak pound has attracted colossal numbers of tourists from the eurozone to the UK.

April saw a record 2.93 million eurozone callers — up from 2.499 million in April of last year, according to the Department for National Statistics.

Political uncertainty

The pound has been buying fewer euros since it kill sharply on 24 June 2016, the day after the UK voted in a referendum to commit the European Union.

But other factors are also playing their put asunder give up. So just what is driving the relationship between sterling and the euro at the point in time?

The first thing to say is that it is primarily about euro strength very than pound weakness.

Simon Derrick, chief currency strategist at fiscal institution BNY Mellon, reckons there have been two key factors recently which bear stoked the euro’s strength.

The first was that earlier in the year, there was a lot of public uncertainty in the eurozone, not least about the outcome of the French presidential electing, and that drove the euro lower.

The National Front, led by Marine Le Pen, dearth France to abandon the euro — a move which could have created turmoil in the eurozone — and even the European Union as a whole.

However, when it became jump over that Emmanuel Macron was likely to win, «a lot of the political concerns started to spread thin», says Mr Derrick.

«As political tensions eased, it made the currency look willingly prefer more attractive.»

Supply and demand

Another «significant factor» boosting the euro is apprehension on the markets that the European Central Bank will start scornful back on its Quantitative Easing programme, says Mr Derrick.

This has persisted it pumping 60bn euros a month into the eurozone economy, in an effort to prop up its performance.

Essentially, that has meant huge amounts of euros sloshing around the modus operandi, keeping the value of the euro down.

However, if that changes, then the power on the euro will be lifted.

It’s a question of supply and demand.

«The market has this surmise that at some point between now and the end of the year, the ECB will say something apropos further reducing the QE programme and as a result, the euro’s been going up,» foretells Mr Derrick.

Not only because it will mean less money in the scheme, but also because it will be a sign that the ECB thinks the eurozone restraint can manage without so much support.

‘Stumbling blocks’

There’s a freak side to the relationship, of course: what’s happening to sterling.

Ahead of August’s Bank of England Fiscal Policy Committee meeting, some people had been wondering if there last wishes a be signs that more members of the committee were in favour of uplift interest rates.

When it became clear that wasn’t the box, people were disappointed. That put pressure on sterling, because humiliate interest rates make a currency less attractive to foreign investors, explains Mr Derrick.

In too, forthcoming political events are causing uncertainty for the pound.

Mr Derrick points to «budding stumbling blocks along the way for sterling». He highlights the start of the next disc-shaped of negotiations between the UK and the EU over Brexit, and the Conservative party conference, middle other things.

However, he is unwilling to stick his neck out and predict whether and when the triturate and euro will reach parity.

He concedes it’s «possible» the pound could reach 1.05 to 1.06 euros previous the end of the year.

Take a look online at some of the currency exchanges. At the time, travellers can get about 1.0600 to 1.0836 euros for their pound, depending on how much you’re changing and who you’re doing it with.

But if the intimations are correct that the exchange rate is going to get worse for Brits, then those deals power start to seem quite attractive.

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