Currency Exchange: Will the Euro/Pound Rate Improve?

A leading expert in foreign currency explains how she thinks the pound/euro currency exchange will develop in 2013….


Q. How do you foresee the strength of the euro to the pound sterling in 2013? Do you think we will see an improvement in exchange rates in time for our summer vacation?

A. Since the start of 2013, the pound has been humbled in terms of its value in currency markets, which has a clear implication for anyone who needs to transfer money from the UK to Italy or back again. Sterling is the worst performing currency in the G10 in 2013 so far. Why? Well, in a wider sense, the markets know that UK growth is likely to be poor in 2013, while the government’s deficit reduction is not hitting its self-assigned targets.

The remedy for this will involve further interference from the Bank of England, although recent current account deficit figures suggest that a manufacturing export turnaround is further away than ever.

Add in the political pressure of an almost certain ratings downgrade and the doubt around the UK’s place within the EU, and it’s easy to wonder why the pound hasn’t fallen more. The UK has looked less and less like a viable ‘safe haven’ from the Eurozone crisis to investors and this has also hurt sterling.

However, this should change throughout 2013 as fears across the continent once again boil over, and we can expect the pound to recover some of this lost ground against the euro as a result. The fact is that, despite our problems, the UK’s economy is set to perform a lot better than that of the Eurozone throughout 2013 and 2014.

As such, this move should be viewed as a short-term trend and not the beginning of a total collapse for the pound. Hopefully holiday-makers will experience a strengthening of the pound’s value ahead of the summer.

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