by Costas Chryanthou

Created on: March 30, 2008   Last Updated: January 14, 2010

Eighty British pence buys one euro or thereabouts today. Conversealy one Pound buys approximately one euro and twenty cents. The rate of strength in the Euro has increased considerably over the past year or two.

Euro has been gaining ground now that more expansion into the Euro zone areas has been made over the past few years. European entry of the Czech republic, Slovenia, Cyprus to name a few have all meant more euros being bought as the benefits of the Euro are being seen by holiday makers, investors, and by big bank borrowing.

Interest rates in the UK are higher by far than in the Euro zone. I remember years ago the European bankers and the EU interest rate setting committee were calling for a stronger economy and higher growth. Now that this momentum in the Euro through pure strength has been achieved there is a fear that this will result in a decline in British tourists to a certain extent. The UK itself, has problems like the US in the recent credit crisis as well as in the overall trade between the Pound vs Euro.

The collapse in the Northern Rock also would cause significant loss of confidence in the UK economy as the British Government have re-nationalised this failed bank with public money. Naturally and with this loss of confidence, and fears about employment and the property falling for a fifth month in a row will naturally cause investors buying euros, both in anticipation and as a consequence. The Euro with its much more diversified national structure adding new members is in a much stronger position.

With this loss of business and investor confidence in the UK based upon economic factors and as the UK already has high enough interest rates, compared to the Euro zone, this leaves the British interest rate committee with little scope for any upward movement in interest rates. The Euro on the other hand should economic growth exceed expectation there are possibly further chance of the Euro gaining more ground on the British pound.

For the Euro situation its impact is welcome news for European investors. For example, it makes investing in Britain much affordable, and it has the opposite effect for British citizens seeking to invest in property abroad. The reason why the British Pound is weak is because the government is not supporting a strong British Pound as well as overseas investors and big businesses. The Euro zone by comparison is much stronger place to do business in and the Euro currency is where the big business deals are made at the moment.

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