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Battered sterling tumbles towards parity with euro
Hugo Duncan05.12.08
Sterling was today on course for its worst week ever against the European single currency, raising the prospect of a one pound euro.
The pound traded at 86.7p per euro, meaning it has lost 5% since opening the week at 82.7p — the largest fall since the single currency was launched in 1999. It is down 20% on a year ago.
The pound also fell 0.55 cents against the US dollar to $1.4635, leaving sterling down 30% from its peak of more than $2 in the summer.
Analysts warned that the rapid deterioration of the UK economy and further cuts in interest rates meant a one pound euro was now a possibility.
Contracts for difference broker Blue Index said the pound was heading for “near parity” with the euro in the coming months as the Bank of England slashes rates and the recession deepens.
Other analysts refused to rule out such a drastic slump, although they cautioned that with the European Central Bank (ECB) under president Jean-Claude Trichet also cutting rates in the eurozone, it may not go that far.
Richard McGuire of RBC Capital Markets said: “It is not our central case, although as the UK races to the bottom on the rates front while the ECB moves more gradually, the risks remain tilted to the upside for euro-sterling.”
Philip Shaw of Investec said: “Who can rule anything out in these markets, but you would need truly abysmal news for sterling to fall another 15% or so against a currency whose economy is struggling as well. Possible but unlikely.”
UK interest rates were cut from 3% to 2% yesterday, meaning they have now fallen 3.75 percentage points from a peak of 5.75% in little over a year.
George Buckley of Deutsche Bank said: “Further cuts will be necessary, we think, and rates now look likely to fall through what we had expected to be the trough of 1.5%.
“As a result, we have changed our view and now see Bank Rate being trimmed to just 0.5%, probably over the course of the next three months,” he added.
The ECB cut its rates from 3.25% to 2.5% yesterday and looks set to lower them further but at a slower rate than the Bank of England.
Skiers who are heading to the Alps this winter will now be paying around £175 for a €200 ski pass compared with £145 a year ago.
Reader views (10)
Yep, it was a great error joining EU without joining EURO. We are paying for EU without having benefits of the large europian market. Unfortunately there is no indication that we are going either to accept euro or to quit EU. The present situation is a disaster.
- Mike, London, UK
We should have joined the Euro when we had a good exchange rate. Its killing importers now. We buy in Euros, value it in sterling for the auditors and then sell it back on the continent in Euros. Why we have not joined this currency and ditched the pint the mile and the pound. Globalisation dictates we must join the Euro.
Sink or swim!!!!
- Bob, Newark
The debate should be about pulling out of Europe. £20 billion a year for what? We are subsidising the likes of the French? That ilk are in Europe to get what they can out of it, not because it is a good thing for Europe.
The original concept was a lose group of trading partners. It is now the federal state of Europe, run by an unelected, unaccountable, corrupt political elite.
The last thing we need is to join the Euro. With the Liberal-Lefties running this "democracy", we would roll over and become a third world country.
Long live 'Little England', we don't need the prejudice Europeans all envious of our standing in the world.
- Frank, Home Counties, England
Sterling is tumbling because the Great Retard of Downing Street is planning to print money a la Zimbabwe, completely debasing it, because the world - rightly - will not lend him the hundreds of billions of pounds that he wants.
2009 will be an utter disaster as fears of deflation give way to stagflation - many times more disastrous than 1976. And where is the Right Honourable Opposition in these times? Nowhere to be seen or heard. What a shambles.
- Gb, London, UK
Its unlikely the pound Sterling will cease to exist and the euro be adopted.
Firstly, the current Sterling depreciation is quite good insofar as it helps UK exports and also encourages euroland shoppers to come here to buy. It may be as big a stimulus as one can hope for at present.
Secondly, the existing euro members will not allow the UK to join monetary union at the sort of highly advantageous exchange rate we have right now.
Lets just give the silly story about us joining a rest shall we....
- Mark, London
Gordon Brown is guilty of fiscal and monetary mismangement. The labour party, who offered him to the nation as a leader, deserve to go into the political wilderness for a generation or a turn of the economic cycle; whichever is the longer.
- Peter Haldane, London
The market will determine the eventual parity of the pound with the euro. Get used to it. Sterling is like a cork in a Force 12 gale. Joining the euro makes good economic sense as is now being cruelly illustrated to all the little englanders out there! There are 2 currency blocs in the real world - it's time we British put aside stupid prejudice and embrace the currency of Europe.
- Colin Beadle, Hitchin
I live abroad and have watched sterling tank with horror. A 30% increase in consumer prices, together with a 30% drop against the dollar has made it nearly impossible for me to live abroad with a sterling income.
- Jef, Tel-Aviv, Israel
A word of warning to anyone gullible enough to think that maybe we should join the Euro. Italy's currency went down before the joining arrangements were concluded, and she was made to revalue the Lira to stop any competitive advantage.
Joining the Euro would also force us to suffer whatever interest rate was most appropriate for the continent, as the Irish painfully discovered.
- Jools, London
Only a "financial genius" of Gordon Brown's calibre would sign up for the Euro from the weakened position he has generated with his evil ignorance.
- Philip Morris, Watford
