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The pound has gained across the board this week (except, it must be said, against the USD) as speculation Greece will exit the euro sends investors fleeing to safe havens.
By Peter Lavelle at foreign exchange specialist Pure FX
Here is my latest update of the UK pound to euro currency exchange rate, covering the 9th to 16th May 2012. This is intended as a brief guide to what’s affected the exchange rate this past week as well as what might happen next, to help you decide if now’s the best time for you to change currencies.
In the past week
1. The pound has held at its highest currency exchange rate against the euro since 2008 this week, as speculation Greece will exit the euro panics the markets. In addition, the pound has climbed 14 cents against the New Zealand dollar compared to a month ago, and 8 cents against the Australian dollar, for exactly the same reason.
2. Francois Hollande met Angela Merkel this week, sparking speculation about the basis of their partnership as leaders of the Eurozone’s biggest powers. This will become especially important in coming weeks, as Hollande’s preference for growth clashes against Merkel’s continued commitment to austerity.
3. Spain’s banks also added to euro weakness, as it emerged that a further 4 regional banks (or cajas) would be merged to prevent them going bankrupt. This though is not expected to solve Spain problems, given that its banks remain exposed to billions in bad loans from the property crash. This could also prompt euro weakness to come.
4. Australia’s unemployment rate fell a surprise –0.4% to just 4.9% last week, confirming sentiment that Australia is in relatively great shape compared to most industrial nations. However problems in China, on whom Australia depends heavily for mining investment, means the AUD exchange rates did not gain.
5. The Bank of England is expected to downgrade its 2012 forecast for UK growth this afternoon, following on from the fact that Britain has officially re-entered recession. However, UK unemployment quite surprisingly fell for the second month on the trot this month, suggesting the recession will be short lived, and helping to keep the pound high.
6. The USD gained against the pound and most other currency exchange rates this week, both because the situation in Greece led to US dollar demand as a safe haven, and because US manufacturing data arrived at double forecasts this week. The USD looks set to keep gaining, so long as Europe remains on the point of meltdown.
In focus: Greece to exit the euro?
In Euro-land, things have a habit of happening that months earlier politicians swore could never happen. This is the case with Greece now: just two months ago, the idea of Greece leaving the euro was called preposterous by anyone that mattered.
But now, figures including President of the EU Commission Jose Manuel Barroso are discussing the possibility in all-but open terms with journalists, while German finance minister Wolfgang Schaeuble does the same. So, why the change?
Well, it could be that following the failure of Greece’s three biggest parties to form a government, Greece is about to elect a group of anti-bailout radicals at the second election. Given that the Eurozone’s firewall stands at €500bn at present, Mr. Barroso perhaps feels comfortable with this possibility, which explains why he’s happy to discuss Greece exiting.
Nonetheless, this is an event all but unprecedented in modern history (the last time a currency union disintegrated was the USSR) which explains why the euro remains under huge pressure, even if the Eurozone’s politicians seem sanguine. Looking ahead, we should find out if Greece stays or goes following the second general election in a month, and the effect that will have on currency exchange rates.
I will of course return with my next update next week.
If you have any questions about changing currencies or transferring money abroad in the meantime, don’t hesitate to leave a reply in the box below. I’d be delighted to provide an in-depth personal answer to your enquiry, free of charge.
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Category: Currency news