The Unpredictable Character Of British Pound And The Euro Exchange Rate

Britain is one of the few founding members of the European Union refusing to accept the euro as a national medium of exchange. Many people in the UK believe that a possible adoption of the euro will affect the local economy and the euro exchange rate will prevent the booming of the British financial sector and other sectors of the economy. Several successive British governments decided not to join the euro, favouring the pound as a national currency, while the debate about the future adoption of the euro still goes on.

This debate does not influence directly the currency exchange rates of the British pound and market observers often witness the euro exchange rate and the British pound exchange rate going simultaneously in the same direction against the U.S. dollar, for instance. The pound exchange rate depends on the same factors, which determine the value of all other currencies: the state of the economy, inflation, unemployment, etc. Since the British economy is closely tied to that of the Eurozone and the entire European Union, the British pound often gains against the U.S. dollar in times when the entire Eurozone is booming and the euro exchange rate is strengthening as well.

You should not take such a development of the two exchange rates for granted, though. Many situations might occur when the British pound will not follow the exchange rate of the euro and would gain or lose in value against the single European currency. Interest rates influence directly the currency exchange rates, for instance; but with interest levels of 0.5% in 2010, the lowest level ever, the Bank of England cannot take advantage of this tool to correct the exchange rate of the pound so other factors are more important in determining the exchange rate. Those other complex factors determine the mutual exchange rate of the two currencies as well as their correlating market moves so if you want to exchange your pounds for euro or vice versa it is a good idea to consult a Forex expert for advice when and how to conduct such a currency exchange transaction.

The euro exchange rate is susceptible to influences related to releases of official economic data and even market rumours and the market can give you a bitter surprise if you have decided to play on the Forex market unprepared and without proper market knowledge. The euro exchange rate against the British pound can hit a record low against the pound, following market rumours or comments by a financial tycoon like George Soros. You can hardly follow all the data and comments that determine the GBP/EUR exchange rate in contrast to experienced Forex traders who are doing this as a routine. The euro exchange rate can be a tricky one to follow so you have to realise that conducting profitable currency exchange transactions is about deep knowledge of the market and dilettantes can lose their money in seconds.