Changes in the exchange rate could affect how much we can invest, the cost of imported goods and how much travel money we can afford. The pound to euro is generally in favor of the pound. But is this trend likely to continue?
We look at why the pound is more powerful than the euro and what it means for you.
Why is the pound so much stronger than the euro?
Many factors affect currency exchange rates. The pound-to euro ratio is determined by supply and demand as well as inflation and economic policies.
The strength of a currency is heavily affected by its interest rates. A currency with high-interest rates is supported by foreigners who can earn higher returns from investing in the country.
The coronavirus pandemic has meant that interest rates have been held at record lows. The Bank of England’s interest rate is marginally lower than the European Central Bank’s (ECB) rates at the time of writing. This is a positive for the pound.
The expectation is that the Bank of England would increase the base rate sometime in 2022. This is a much earlier rate increase than the ECB had anticipated.
The pound to euro exchange rate can fluctuate due to fluctuations in economic policies. The pound is still slightly ahead of the euro, but the recent decision to keep the pound’s quantitative ease levels has seen it drop from a more favorable position.
But if you look long-term, the pound has outperformed the euro for a good period. There is also optimism for the immediate future.
What is the point?
Our financial lives are impacted by the pound to euro exchange rate.
Some might invest in FX markets. Any fluctuation in the currency of the pound against the euro could impact their returns.
It has a major impact on the value of exports and imports. A stronger pound means that imports are less expensive but exports more expensive.
It also affects travel money for international holidays, although not many people are currently taking them. To take advantage of the strength of the pound, you might be tempted to buy your travel money right away. It is worth waiting to see more travel information this summer. It is not a good idea to keep your cash in foreign currency.
What are the best ways to get the best travel money deals?
The pound to euro exchange rate fluctuates constantly, but the current forecast is that the pound remains stronger than the euro.
Here are some ways to buy travel money if you are planning on holidaying in Europe this summer.
- Prepay your money before you travel: If you do not plan, you can often get a better deal.
- A currency card is a prepaid card like Revolut that allows you to exchange money instantly. Who can also use the card abroad?
- You can shop around to find the best deal. While there is a general exchange rate for the market pound-to euro, each outlet will offer a different deal and fee.
- You can use your debit card to purchase travel money: If you use your card, there could be additional charges than you would face if you used a debit card.