Will an EU increase in percentage rate, better the exchange rate for pound against euro?

Question

Will an EU increase in percentage rate, better the exchange rate for pound against euro?

Answer 1

Good question and one I was about to ask myself!

I'd say it depends if

a) It strengthens the Euro therefore weakening Sterling.

b) It weakens the Euro therefore strengthening Sterling.

c) the Bank of England follows

d) The market is jittery that day

e) If there is another natural disaster causing a run on currency.

f) how big the rate rise actually is.

I don't know so I have exchanged money into Euros today!

Answer 2

Pound will feel pressure toward devaluation relative to Euro if ECB will rise rates even further, resistance/support against it should be provided by fact that UK economy is very strong and one of best developed in Europe.

Currently by interest rate (LIBOR) GBP is more expensive than EUR:

3M-Libor(EUR)=4.955

3M-Libor(GBP)=5.95188

One more fact - in euro-zone there are many countries and they all not feeling so good, so seems like GBP should remain stronger than EUR (that is may not devaluate further), but it still depends on what will UK central bank do in future.

Answer 3

in theory, the increase in ECB rate should increase the value of the Euro insofar as investing in Eurozone banks should become more attractive, so people demande more Euros to do so, thus raising the price. However, if it stunts growth, they may export less so demand for Euro falls and so does the value. As with many economics questions, it depends! However, if i was a gambling man, i would tend to go with the euro becoming even dearer