Pound-Euro exchange rate: Sterling lingers near eight-year low raising prospect of parity

Josie Cox
'From the UK point of view it's not looking good': Bloomberg

The pound is hovering near an eight-year low against the euro, sparking forecasts that the two currencies could be on course for striking parity for the first time in history.

On Wednesday morning, the pound was changing hands at around €1.0796 on official exchanges, close to its lowest level since 2009, as uncertainty around Brexit continues to dampen appetite for the already battered currency.

Earlier this week— at a press conference in Brussels to mark the start of the third round of Article 50 talks— the EU’s chief Brexit negotiator, Michel Barnier, said it was impossible to make serious progress on negotiating Brexit while the British position lacks detail.

“So far, there are no signs of progress and differing opinions of Brexit Secretary David Davis and his EU equivalent Michel Barnier suggest there’s a lot to be done to bring both sides into an agreement,” Hussein Sayed, chief market strategist at FXTM, wrote in a note earlier this week.

“Although the pound seems oversold, it is likely to remain under some pressure until positive developments materialise,” he added.

The euro, in contrast, has emerged as an investment of choice for those spooked by tensions across the Pacific. Earlier this week it crossed the psychologically important $1.20 threshold against the dollar for the first time in around two and a half years after a missile launch over Japan from North Korea sent the dollar sliding.

“You’ve got two politically plagued currencies offsetting each other – you’ve got Brexit for sterling and you’ve got Trump and geopolitics for the dollar,” ING currency strategist Viraj Patel told Reuters.

“So in effect the euro is the de-facto political haven.”

Already last week, the value of the pound slipped well below €1 at some airport exchanges, ramping up costs for those holidaying on the continent, and some traders say that parity could now be on the cards on official exchanges too.

“From the UK point of view it's not looking good,” Laura Lambie, senior investment director at Investec Wealth and Investment, told BBC Radio 5 Live.

She said that although she does not expect the pound to trade at parity with the euro in the long term, she could see it happening in the short term.

Earlier this month strategists at Morgan Stanley forecast that the pound would be worth less than the euro on official exchanges by early next year.