Where is Sterling going?

Not sure where to post this but I think the fluctuation over the last few months brings it into the remit of this forum!

When sterling went down as low as 97c, people were saying it was only a matter of time before parity - then it went the other way and is now hovering around 91c - Can someone clariify how the relative interest rates BoE v ECB moves impact on the currency exchange rates - I am looking to convert to sterling for a largish investment and I am trying to anticipate as much as I can

Thanks

Don't try and anticipate - that's impossible. The market prices in that exchange rates will change in future at the difference in the respective interest rates - i.e. v. v. slowly.

Of course exchange rates will change must faster than that but no-one can tell in what direction.

If you have a large sterling outgo looming - hedge it now by buying sterling. Otherwise you are running an exchange rate gamble which might prove good, might prove bad. Do you like gambling?

Thanks for that - I thought I saw somewhere that the significant drop in value of Sterling was linked to the dramatic decrease in base rates by BoE so trying to establish was this an economic link. Most I tend to completely gamble is the Tueday game of Poker

It's easy to explain exchange rate moves after the fact. Much harder to predict what might happen in future, though.

westcork said:

Thanks for that - I thought I saw somewhere that the significant drop in value of Sterling was linked to the dramatic decrease in base rates by BoE so trying to establish was this an economic link. Most I tend to completely gamble is the Tueday game of Poker

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Yes but not because of the interest rate per se that is a small effect. But the aggressive reduction in rates signalled that the authorities perceived the economy in deep trouble - that's what triggered the fall.

1st of all, your quoted figures are the wrong way round.

Sterling has always been stronger than the Euro, so I think you meant to say 1 Euro was 97p, and 1 Euro was 91p, not the other way round.

As for where its going to go, well thats just guesswork. Every expert has their own opinion and they can just be as wrong as anybody. Too many factors playing into it.

I have read a few media articles saying that many pundits reckon that the Euro will fall back to the likes of 80p, or even 75p by the end of 2009/early 2010. I personally hope it does, as I live in RoI but earn in sterling, so I saw my mortage and household bills get a lot more expensive recently.