GBPEUR Forecast – What will happen on GBPEUR in 2012?

GBP/EUR exchange rates creep up over the course of the trading week

The end of 2011 saw the return of some of the most favourable GBPEUR rates seen in years. Trading levels approaching and above 1.20 represent a goal for many clients and these levels were hit in December, the highest the rate had been in nearly a year. So will this continue in 2012?

Well on a balance of probabilities I feel not. This is because the reason for the recent improvements are more to do with euro weakness as opposed to sterling strength. When looking at the performance of the pound against most other currencies, it has actually got weaker. This is because the economic situation of the UK is not improving, in some areas it is actually worsening. Nowhere is this more true than with Unemployment data which has contiunued to rise, and is predicted to continue to rise in 2012. Growth is very low and inflation whilst falling ever so slightly remains stubbornly high.

I would expect therefore once focus returns to the pound we will see the rate come back to the mid teens. I wouldn’t expect a fall too much further due to the recent interest rate cuts in the eurozone. Interest rates are a key driver on exchange rates and generally speaking the lower a central bank’s interest rate, the weaker a currency. The two rate cuts by the ECB in the final quarter of 2011 have therefore provided a platform of weakness which allowed the rate to break 1.20, and will in all probability prevent a drop back below 1.15.

The prospect of QE in the UK (which may be seen as early as next week) could also weaken the pound, and on 25th January we have UK GDP figures for Q4 2011, which could well show the UK economy contracted.

Aside from the sterling side we of course have the euro. Despite the continued negative euro coverage in the media, I think the euro will muddle through and resolutions along the way will give strength. Greece leaving (if it happens and I think it may have to) will likely give the euro strength. The ECB will surely play a larger role in 2012 as pressure grows on the central bank to act as the dreaded ‘lender of last resort’. All of these factors will surely keep the euro strong. Yes, there is the prospect the euro could weaken but as discussed I feel that as they muddle through much of the strength will remain.

2011 saw nearly 10 cents movement between the high and the low on GBPEUR rates. As a specialist broker we can help not only get you the best rate but help keep you updated on all of the events that will affect your rate. Rates move every couple of seconds so it is really worth your while making sure you explore all your options. The specialist company I work for has won awards for our rates and I have never had trouble beating not only the banks but every other source of currency I have come up against. A new year is the perfect time to start changing things and if you are unsure if you are really getting the best deal on your foreign exchange, why not contact me to find out. Please fill in the contact form or e-mail me directly on jmw@currencies.co.uk quoting JMW and GBPEUR.

Happy New Year