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Pound to Euro exchange rate: Why has Sterling fallen so low? What does it mean for Brits?

Consumers have until August 29, 2019 to claim for mis-sold PPI.
Consumers have until August 29, 2019 to claim for mis-sold PPI. / Getty
By
12 August 2019
T

he Pound plunged to its lowest level for a decade late on Sunday amid growing fears the UK is heading for a no-deal Brexit.

Sterling hit 93.26 pence against the Euro, the lowest since October 2009 apart from a flash crash in October 2016, and to a 31-month low of $1.2015 versus the dollar.

It rallied slightly after gaining 0.5 per cent from €1.073 to €1.079 on Monday morning, but Sterling's value has come at a terrible time for holidaymakers with millions of Brits heading abroad for summer.

On Friday, it fell to a 31-month low, leaving it worth only a fraction more than the Euro after the UK's economy shrank for the first time since 2012 in the second quarter of the year.

On Saturday morning, one pound would buy just 1.06 Euro. Brits were being offered a return of 230 Euros for £218 for holiday spending cash by the Post Office today.

Here's why the Pound has hit a new low and what it means for Brits.

Why has the Pound fallen so low against the US dollar and the Euro?

An unexpected second-quarter contraction in Britain's economy had late last week sharpened the market focus on fears that the country will crash out of the European Union at the end of October without a transitional deal.

A significant compression of UK (debt) yields and Brexit undertones" are why sterling dropped against the Euro, said Kamal Sharma, forex strategist at Bank of America Merrill Lynch. This is a "natural breeding ground for sterling losses," he said.

Low liquidity and media reports that Ireland will not renegotiate the Brexit backstop at an expected meeting with British Prime Minister Boris Johnson this month also weakened sterling, analysts said.

Mr Johnson has since insisted he will "go the extra thousand miles" to secure a deal but with just two months to go until the October 31 Brexit deadline, many believe he has set the UK on course for a cliff-edge Brexit.

Fiona Cincotta, senior market analyst at City Index, said: "The outlook for the Pound remains extremely fragile as the prospect of a no-deal Brexit increases

"With the blame game between the EU and the UK in full swing, the chances of the two sides renegotiating the Irish backstop appears slim; instead preparations for a worst-case scenario, no-deal Brexit are being prioritised."

How low can the Pound go?

Some experts believe the worst-case scenario of a hard Brexit has still not yet been fully priced into the Pound, which could well mean further falls as the Brexit deadline looms large and with speculation mounting over a snap general election.

There are fears the Pound could hit parity with the Euro or fall below - already having slumped to 1.06 against the single currency - and even reach parity with the US dollar as the Brexit woes unfold.

What does this mean for Brits?

The immediate impact of the falling Pound is being felt by British travellers heading off for their holidays, with one Euro valued at just over 93p.

This means that travellers to Europe will find their Pound does not go very far while they will also get a poor Dollar rate if they are going to the US or countries where the greenback is the main currency - hiking up the cost of everything from accommodation to food.

Nigel Green, founder and CEO of financial advisory firm deVere Group, said earlier this year that the falling pound will have an impact on holidaymakers wherever they travel.

He said: "Even destinations such as Dubai and China are more expensive as their currencies are pegged to the US dollar."

"Overall, the pound is the worst-performing major currency in the last three months, meaning almost every destination is now more expensive than it was for Brits," he added.

Is it just holidaymakers who will be affected by the Pound's tumble?

All UK consumers stand to be impacted by a sustained plummet in the value of the Pound, because it makes it more expensive for retailers and manufacturers to import food, goods and materials.

This means prices will be pushed up for goods and services, sending UK inflation rising and hitting Britons hard in the pocket.

Are there any benefits to a falling pound?

A weak Pound can prove helpful in a number of ways, by making it cheaper for foreign companies to buy UK goods and boosting exports as a result.

It can also increase foreign investment in the UK, for example in property and in shares.

The FTSE 100 Index on London's stock market usually rises when the pound falls as it is dominated by internationally-focused firms, which trade largely in US dollars.

A falling pound can also increase tourism to the UK, with overseas travellers looking to make the most of a better exchange rate.

This offers a boost to retailers and other sectors, such as restaurants and leisure attractions.

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