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A matter of interest

Peter Rexstrew of currency exchange specialists Premier FX looks at how UK economic factors influence the Euro.

The last month of the first quarter of 2011 is now upon us, and it’s probably fair to say that the UK economy is still not officially on the ‘up’.

Various economic pointers over the past few weeks have given us all mixed feelings. The Bank of England seems to want to raise interest rates from the current all-time low levels, but also seems to be indecisive as to when to do this.

This is the next big economic move for the UK, so how will it affect the exchange rate?

We are finding more and more people are taking an interest in the exchange rate levels these days. In the past, if you lived abroad, it was pretty safe that you would be able to achieve 1.40-1.50 for the Sterling-Euro rate, and you could base all your outgoings on that.

However, since the Pound’s tumble to almost parity, the level of the exchange rate is a lot more important to people.

Fact: it is not going to reach the heady heights of yesteryear just yet. Even if interest rates rise as expected, there will not be a massive in-flow of investors buying sterling. Although it’s difficult to predict accurate levels, we could be living with 1.16-1.20 for a while.

Even if we “soar” above 1.20 it is possible the rate will not move much further than that for some time.

The reason is simple: the UK economy is still fragile and this will continue to affect the exchange rate. And even though much of Europe is also in trouble, the UK still relies heavily on exports to Europe.

We don’t want to sound too pessimistic, as the levels for the exchange rate are really not that bad.

It’s just a case of getting used to dealing at these levels and perhaps having a chat about the markets with your currency broker about a longer-term strategy.

Premier FX is regulated by the FSA as a fully authorised payment institution and regulated by HM Customs and Excise.

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