THE £/EURO EXCHANGE RATE – WHERE IS IT GOING?
by Mark Mountney
For those folk living or buying property in Spain with an income in UK £, the exchange rate in converting to Euros is critical in every sense of the word. The demise of £ over the last year or so is a large part responsible for the return of many Ex Pats back to the UK. They simply could no longer afford to live here!
So any positive news on this front (i.e. a relative strengthening of £ against the Euro) is welcome indeed!
So just where are we now and, more importantly, where are we going?
This morning (1st June 2010) the rate stands at Euros 1.19 per £; the highest point since July 2009 and a world apart from the all-time low of near Par in January 2009.
We know why the Euro is weaker today (the concern over European members GDP deficits) but it would be useful to take a closer look at £ for, if that currency were not weak in its own right, the £/Euro rate would be much higher still.
There are 2 sides to the coin you see; we need to know where the Euro is going but also, on the flip side, where is £ going?
I recall a comment I made back in early 2008 when asked this same question. I said then, which has proved correct with time, that the Euro is inheritantly weak for it is nigh impossible to balance the economic and financial requirements of so many member communities, each pulling in different ways. I was not sure how long it would take but, at some point, the obvious gaps would be seen by all and, when pressure is applied, the currency could be in trouble.
So any positive news on this front (i.e. a relative strengthening of £ against the Euro) is welcome indeed!
So just where are we now and, more importantly, where are we going?
This morning (1st June 2010) the rate stands at Euros 1.19 per £; the highest point since July 2009 and a world apart from the all-time low of near Par in January 2009.
We know why the Euro is weaker today (the concern over European members GDP deficits) but it would be useful to take a closer look at £ for, if that currency were not weak in its own right, the £/Euro rate would be much higher still.
There are 2 sides to the coin you see; we need to know where the Euro is going but also, on the flip side, where is £ going?
I recall a comment I made back in early 2008 when asked this same question. I said then, which has proved correct with time, that the Euro is inheritantly weak for it is nigh impossible to balance the economic and financial requirements of so many member communities, each pulling in different ways. I was not sure how long it would take but, at some point, the obvious gaps would be seen by all and, when pressure is applied, the currency could be in trouble.
And that is where we are today! There is nothing that has changed since the Euro 1 Trillion ‘Rescue Package’ was announced. Many in the markets believe it will take a lot more than that to stop any
significant run on the currency and the basic problems (GDP shortfalls) have not really been addressed.
So the Euro remains weak and will stay so for a long while!
To the UK £. The UK too has similar GDP Budget deficit issues to address but the economy should be able to ‘bounce’ quicker than the combined European Community. Germany can only do so much for Europe; it cannot continue to carry the burden and why should it? And Europe’s problems are deeper than those in the UK and will take longer to rectify.
If the UK is able to put in place measures to cut its own deficit, without too much pain and anquish (and that means in the eyes of the money markets) then its own current weakness should reverse to a degree i.e. The £/Euro rate should increase. Quite how high remains to be seen but let’s just say that the current rate is fair and certainly that ‘par’ rate of 1:1 will unlikely ever be tested again.
The 3 Year Chart below shows the rate sliding from Euros 1.50 per £ in July 2007, all the way down to that near ‘par’ position in December 2008 and a more roller coaster of a ride back up to today’s 1.19.
Could it be that we can get back to the ‘nirvana’ days of 1.50? Possible!
See www.rosefp.com or call 0034 677 874 948.
So the Euro remains weak and will stay so for a long while!
To the UK £. The UK too has similar GDP Budget deficit issues to address but the economy should be able to ‘bounce’ quicker than the combined European Community. Germany can only do so much for Europe; it cannot continue to carry the burden and why should it? And Europe’s problems are deeper than those in the UK and will take longer to rectify.
If the UK is able to put in place measures to cut its own deficit, without too much pain and anquish (and that means in the eyes of the money markets) then its own current weakness should reverse to a degree i.e. The £/Euro rate should increase. Quite how high remains to be seen but let’s just say that the current rate is fair and certainly that ‘par’ rate of 1:1 will unlikely ever be tested again.
The 3 Year Chart below shows the rate sliding from Euros 1.50 per £ in July 2007, all the way down to that near ‘par’ position in December 2008 and a more roller coaster of a ride back up to today’s 1.19.
Could it be that we can get back to the ‘nirvana’ days of 1.50? Possible!
See www.rosefp.com or call 0034 677 874 948.
