Predictions for the Euro 2009

Readers Question: Buying a new property in Montengro

  • 215,000 Euros’s
    paid 30% at exchange 1.47 to pound August 2007
    20% due in 2-3 months. 43 ,000 euros
    today exchange is bad news approx 1.23 to pound
  • further 30% due around Nov -Dec 2008
    20% on completion around April 2009

1.What are your predictions for the pound euro exchange rate at the time points above. June 08 – April 09?

I would be reluctant to stipulate a figure for the Euro / Pound exchange rate, especially with so much resting on your decision. People do talk of an exchange rate of 1 Euro to £1. This is because:

  • Weakness in UK housing market and UK economy. This could lead to lower interest rates in the UK in the next 12 months. If the UK housing market really collapses as some people fear, the £ will only get weaker.
  • Chance of Euro becoming worlds’ reserve currency instead of dollar. If central banks made the switch to the Euro, it would continue to gain in strength for a long time.

However, it is worth bearing in mind.

  • The strength of the Euro is already causing problems for the EURO economy which relies on a strong export sector. Further rises would slow growth and increase chance of ECB cutting interest rates to stimulate growth.
  • There are also signs of housing markets in Europe being overvalued. The Spanish and Irish housing markets looks set for a fall, this should weaken Euro growth and the value of the Euro : see: Economist article
  • On balance I would predict the exchange rate to stay pretty close to the present value. i.e.1.30 I think it remain strong but not any more stronger. However, I should stress Economists have a very high propensity to be wrong when it comes to making predictions.

2. Are their ways to minimise our exposure to the volatility of the euro / pound exhange rate?

Big firms would buy futures contracts which give the right to buy Euros at a fixed price now. This helps to insure against a rapid appreciation in the Euro.

3. Can we do anything with the sterling funds we have now to claw back any future losses?

I’m not really an investor more of a peniless economists, so I’m not really the right person to advise. Sometimes in a recession, stock markets rise, but, since you are on a very tight budget, it would not make sense to invest in anything risky, especially at the moment given the turbulence in the financial markets.

4. in next blog post

By on April 22nd, 2008

8 thoughts on “Predictions for the Euro 2009

  1. for the first 6 months eur/usd will be in the range of 1.2200 to 1.3600 and after june 2009, it may fall below 1.2000 as us dollars will rise.

  2. The Euro, like the British Pound, will continue to struggle through 2009 and 2010. There will probably parity in value, however the Euro could struggle as the economy in Euroland falters in the second quarter of 2009.

    There could be some ‘green shoots’ of a lift in the Economy of the EU (all EU States, in the second quarter of 2010). But this depends very much on a collective response by all member states to co-ordinate policy. However this does not mean the the UK will ditch the Pound and come on board with the Euro.

    Much depends on what the new US President Mr Obama and his economic team do in America to stimulate growth that does not end up with more ‘Toxic Debts’.

    2009, 2010 through to 2011 will still be a difficult period for many, particularly on the employment front, homes being repossed and personal debt and bankruptcy.

    2009, certainly 2010 could see a change in UK Government to a Conservative administration as further stressess and scandals surround the Brown administration in the UK.

    (Predictions prepared by examining Pieces of Seaweed and the entrails of Black Puddings and Haggises)

  3. I find the prediction that the euro will become the world reserve currency strange in the extreme. The euro zone is highly unstable and the only reason that the euro is strong (relative) is that the German economy is underpinning its value. Whe the Germans become tired of helping the system out then the euor will surely go down like a stone. Lets wait to see what happens when the Greek economy collapses!

  4. Oh dear, more Euro bashing nonsense – like all the doom and gloom when the Euro started that it would only last six months! As for the Greek economy collapsing, lets see by the end of the year how the so-called ‘united kingdom’ fares by comparison.

Comments are closed.