Revision: The Pound Falls to 5 Year Low against the Euro
Today’s revision note is on exchange rates and is designed for AS students - the pound has slipped to a five year low against the Euro. It is perhaps the result of the Euro’s strength against the US dollar rather than any fundamental collapse in market sentiment against sterling.
The currency markets are expecting the Bank of England to cut official policy interest rates further this summer (the Governor of the Bank of England hinted strongly that this will happen in evidence to the Treasury Select Committee yesterday and the Chief Economist at the BoE, Charles Bean, has said that he expects the pound to fall further!). So while £1 will still buy you more than $2 but it will get you only Euro 1.28.
The revision note is available for download as a pdf file below.
Here are two recent BBC news clips on the effects of exchange rate changes - both useful for macro revision purposes.
How currency changes hit firms
Revision note file
Revision_Focus_Exchange_Rates_AS.pdf
