Is now a good time to convert pounds into euros? Analysts offer differing views thanks to latest economic data

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Published on Thursday, 27 September 2012 11:22

Written by Rob Samson

Is now a good time to convert pounds into euros? The short answer is yes if you take a medium to short-term view as the pound has clawed its way out of the mess it found itself in during the middle of September - a low of 1.2322 was reached following a raft of positive pro-Eurozone measures announced by the ECB.

But as always, what most people with an eye on the international money transfer and payments market will be asking is where the pound euro exchange rate is headed next.

The Eurozone is in a bit of a mess, and yet the euro fails to fall further. This would suggest to us that those looking to convert pounds into euro's should keep an eye on domestic issues instead.

And today we see support for GBP coming from the latest revision to GDP which shows the UK economy is not in as bad a position as initially thought.

We see that today the Federation of Small Businesses (FSB) has welcomed the downwards revision to GDP to -0.4 per cent for Q2 but has cautioned that the economy is not out of the woods yet.

Commenting on the revision, John Walker, National Chairman, Federation of Small Businesses, said:

"The revision to GDP is welcome news, but we're not out of the woods yet. Our research shows that small business confidence remained weak in Q3 and we believe growth will continue to be flat in the coming months. Clearly employment is key to lifting sentiment and we need to see more people in full time work. The FSB believes extending the National Insurance Contributions holiday to all small firms across the UK will go some way to helping to create the jobs that are needed."

The negative outlook would be bad for sterling. Jason Conibear, trading director at forex specialists, Cambridge Mercantile, is as bearish as they come. Referring to the GDP stats Conibear says:
 
"It's not as bad as we first thought, but it's still abysmal.
 
"0.1% is neither here nor there in the grand economic scheme of things.
 
"We're still deep in the red and there's no sign yet that any sectors of the economy have any real momentum.
 
"With the European storm really starting to blow now, the pressure on the economy will only get more intense. The further ahead we look, the more ominous things appear.
 
"There may well be an Olympics-driven pick-up in the third quarter, but beyond that where is the growth coming from?
 
"You need demand to grow, and demand, both domestic and overseas, just isn't there. If anything, it's contracting.
 
"At home, doubts remain whether the Funding for Lending Scheme is having a material impact and getting through to the areas of the economy that really need it.
 
"As for the Business Bank, it's just another idea right now and the economy doesn't need ideas, it needs actions — and it needs them now, not in 2014.
 
"Some claim we'd be out of recession once you factor in the appalling weather and Jubilee during the second quarter, but this is mere clutching at straws."