Is This Rock Bottom For The Pound?

Posted by Allison on 1 April 2009, 16:32

It's not exactly big news to say that the British pound is having real trouble standing up to its competitors as far as exchange rates are concerned at the moment.

2008 was certainly not a year when the pound finished on a high note. From the heady heights of the first half of the year, when the pound could claim $2 US dollars for each pound you exchanged, things went on a steady downward spiral as the effects of the credit crunch gradually became known.

But it wasn't just the US dollar that was standing up to the might of the British pound and winning. The Euro was also finding it increasingly easy to take advantage of a better exchange rate. Many British people were tapping away on their currency converter and finding that a short break in Europe wasn't going to be such a good idea after all.

This state of affairs really reached a boiling point during the middle of December 2008, when one pound didn't even get you a single Euro to spend. The point at which one pound becomes worth the same as one Euro is known as the point of parity between the two currencies. But you don't need to get down to that level to find that one pound is worth less than a Euro. This is because of transaction charges and altered exchange rates that give the Bureau de Change and similar places their profits.

Indeed, on the 14th December there were several news articles which reported just this state of affairs. This typical example from the Guardian website – at - shows that by the time you have paid your fees you could expect to get even less in the way of Euros than you would have done some time before.

This clearly wasn't a good time for the British pound. It started off the month reasonably enough given the current climate, with an exchange rate against the Euro of 1.1882. But that was as good as it got all month.

It dipped below 1.17 to 1.1699 just two days later, and from there it took just another twenty four hours to go below the 1.16 mark, reaching 1.1592 by the end of the 4th December.

The day after the news story broke on the Guardian website, the exchange rate was down even lower to 1.1118 – but there was much worse still to come. With the 1.10 barrier broken just two days later with a rate of 1.0886, it was clear that this wasn't just a temporary run of bad luck. It seemed like the pound was determined to end the year as badly as possible.

The lowest point came on the 29th, when the markets ended with an exchange rate of 1.0219 Euros to the pound. As if in hope of what a New Year might bring, the pound rallied slightly on New Year's Eve to record a jump up to 1.0498. But this is still way down on the figure that started the month – down by nearly fourteen Eurocents to be exact.

So it remains to be seen if we are going to see a revival for the British pound in the coming months; or whether the Euro has yet another falling currency in its sights.