Summer holidaymakers returning from Europe last month may have had a nasty shock as they totted up the final cost of their trips. Sterling took another bashing on the forex markets to trade at eight-year lows under €1.10 against the euro in August.
This was partly due to the hangover from last June’s EU referendum and the slow pace at which Brexit negotiations are progressing. The pound had fetched €1.30 on the eve of the vote, much closer to its longer-term average. As low interest rates usually make a currency less attractive, fading hopes the Bank of England will lift interest rates are also weighing on sterling.
This isn’t just an issue about the weak pound though. Growing confidence that the euro zone recovery is on a solid footing is also inching the European Central Bank towards calling time on its stimulus measures. This helped propel the euro to two-year highs against the US dollar in early August. Meanwhile, Emmanuel Macron’s triumph in May’s French elections on a pro-European platform has taken away a key source of political uncertainty.
Past performance is not a guide to future returns Source: Proquote International. Data as at 22 Aug 2017.
It remains to be seen whether this is part of a broader trend on the way to sterling and euro parity. A one-to-one exchange rate would be a never-before-seen milestone in the single currency’s 18-year history.Find out more about our currency service
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