Pound euro exchange rate heads for 1.33 forecast Soc Gen, but can the UK safe-haven status be guaranteed in a the current economic landscape?

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Published on Tuesday, 17 July 2012 09:39

Written by Rob Samson

International Money Transfers at our sister site

The sterling is seen as a safe bet in times of trouble, courtesy to the UKs gilt offering a AAA safety net to global investors.

The pound to euro rate has been tipped to hit 1.33 say analysts at Societe Generale. For now though the UK currency is undergoing a correction against its Eurozone counterpart, GBP-EUR is seen at 1.2706 at 10:25 AM in London, this being 0.23 pct lower than at last night's close.

According to  Kit Juckes at Soc Gen, "sterling is the best valued non-euro currency," the 1.33 level is pencilled in for mid-August.


"Sterling is pretty cheap in comparison to other European currencies like the Swedish currency even after pricing in the weakness in the UK economy and dovishness from the Bank of England," says the analyst.

This morning's advance by the euro could then perhaps be viewed as a decent entry point for those traders looking to back this viewpoint offered by Soc Gen.

The sterling is seen as a safe bet in times of trouble, courtesy to the UKs gilt offering a AAA safety net to global investors.

But, this rating is not guaranteed and hinges ultimately on the performance of the UK economy going forward.

Yesterday the Ernst & Young Item Club said the UK was set to return to growth through the course of the second part of the 2012.

However this positive news was overshadowed by the negative tone taken by the IMF.

The IMF slashed its growth forecasts for the UK to 0.2% for 2012 and 1.4% for 2013, down sharply from the respective estimates of 0.8% and 2.0% published in April. In response, the UK Treasury merely acknowledged that the UK economy is feeling the effect of the Eurozone crisis.

On the fiscal side, the IMF noted “the cyclically adjusted deficit will continue to decline this year and next, but by less
than last year, which is fitting given the weak growth outlook. The government has appropriately maintained its commitments to balance the structural current budget within five years and to put net debt on a declining path, with additional consolidation in store in 2015-17”.

In February, the international ratings agency Moody’s gave the UK a 30 per cent chance of losing its AAA rating within 18 months.

And the Daily Mail reports that senior officials in the UK civil service believe there is a 50 per cent chance that the UK will be stripped of its vital AAA credit rating within the next 12 months, which would wreck the Chancellor’s economic plans by making it more expensive for the country to borrow money.