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Pound Has Hit a New Record Low Against Euro

The grim outlook for the UK economy continues to put downward pressure on the currency

Weak house price data and figures showing that homeowners are choosing to repay their mortgages rather than spending, pushed the currency lower.

Low trading levels in the foreign exchange markets also helped to force sterling down to 1.0198 euros.

Many analysts believe parity with the euro is now only a matter of time.

The rate for tourists buying their currency before they travel has almost reached parity, where one pound buys one euro. At one major High Street currency exchange, 100 euros currently costs £99.11.

Property consultants Hometrack predicted a 12% fall in UK property prices in 2009, while figures from the Bank of England showed that households were more keen to pay off their mortgages than borrow money against the value of their homes for spending.

BBC has poinyted out two main factors putting downward pressure on the pound, according to the analysts.

First, interest rates in the UK are lower than those in the eurozone, which makes the pound less attractive to foreign investors.

Analysts believe the economic slowdown in the UK will be more severe than in the eurozone, which means the Bank of England could be forced to lower interest rates from their current level of 2%.

Interest rates in the eurozone currently stand at 2.5% and the European Central Bank has hinted that further rate cuts are unlikely early in the New Year.

Second, trading levels over the holiday period are low, which means that any moves in exchange rates are exaggerated.


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