Sterling has continued its sharp rise against the euro this week, blowing past predictions out of the water and proving that in the currency markets there is no such thing as certainty. In October of 2011, GBP/EUR levels were sitting around the 1.15 mark and analysts were queuing up to predict not if but when the single currency would reach parity against GBP. 9 months on and my how the picture has changed. Whilst the UK may be cursing the weather gods and wondering if two days sun in March was as good as it was going to get, there is no doubt are economy is in a better position and in turn our currency has benefited from this and the decline of others.
GBP levels have reached a 3 and a half year high against the EUR and there is no doubt this has coincided with major unrest in Europe, manifested by poor growth prospects and high levels of government debt. Greece and Spain are the two we hear most about in the news but Portugal, Ireland, Holland and Italy (with others following suit) are all having to implement heavy austerity measures and cost cutting, which is proving both unmanageable and very unpopular amongst the locals. Add to this the new French President who is concerned primarily with France’s short-term welfare, not Europe’s and it is no surprise investor confidence is ebbing lower and lower.
I do believe the current strength we are seeing for GBP is primarily to do with the problems in Europe, rather than any real long-term confidence in our own currency and for this reason I do feel a move back down to 1.20 is not out of the question over the coming months, providing there is some sort of long-term sustainable plan for ‘saving’ the EU and its single currency. In my opinion however, we will continue to see Sterling push on and a move past 1.25, which is currently providing some kind of resistance, is very possible based on current global economic conditions.
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