GBP/EUR Money Transfers: The pound hits a 2 month low against the euro

The pound continues to decline from the high’s seen in January and hit a 2 month low against the euro yesterday afternoon.

This despite an upbeat assessment of the UK economy by the British Chambers of Commerce (BCC) who now predict that the size of the overall UK economy will overtake the peak level it was at before the 2008 financial crisis as early as this summer. The BCC also predict that UK economic growth will be 2.8% this year, up from its earlier estimate of 2.7%.

BCC director general John Longworth said that “Our economic recovery is gaining momentum. Businesses across the UK are expanding and creating jobs, and our increasingly sunny predictions for growth are a testament to their drive and ambition."

The BCC also predicts the first increase in UK interest rates will come at the end of 2015 with a 0.25% rise. UK interest rates have been stuck at the historic low level of 0.5% since March 2009. It expects further increases which will see the rate rise to 1.5% by the second half of 2016.

Separately, Deputy Governor of the Bank of England Charlie Bean said yesterday that when UK interest rates do finally start to rise, it should be seen as a welcome sign of an economy that is back on the road to normality although in his opinion, not all of the preconditions necessary for the recovery to be “sustained and sustainable” may yet be quite in place.

Bean added that “Any further appreciation of sterling, which has risen almost 10% in trade-weighted terms since March, would not be particularly helpful in terms of facilitating a rebalancing towards net exports.”

Not so good news from the British Retail Consortium (BRC) and accountants KPMG who reported that UK retail sales went into reverse last month with like-for-like sales falling 1% in February 2014 compared to February 2013 calling into question UK consumers' ability to keep driving the economic recovery.

BRC Director-General Helen Dickinson said "Overall, these figures reflect the considerable challenges still faced by consumers and retailers in the UK. It remains to be seen how the industry will fare over 2014".

In the US, the US Bureau of Labor Statistics reported on Friday that the key employment data, known as the US non-farm payrolls (NFP) expanded by 175,000 during the month of February, a much higher figure than expected, strengthening the US dollar.

Meanwhile, in the euro zone, a survey by Sentix showed that euro zone investor confidence rose in March to its highest level since April 2011.

This days after the European Central Bank (ECB) raised its expectations for economic growth in the euro zone for the next 3 years with gross domestic product forecast to now grow at 1.2% this year; 1.5% in 2015 and 1.8% in 2016.

The euro rose across the board on the back of the latest data release despite a call from a leading German institute for full-blown Quantitative Easing (QE) by the ECB to head off a deflationary spiral.

Marcel Fratzscher, head of the German Institute for Economic Research (DIW) in Berlin, demanded €60 billion of bond purchases each month to halt the contraction of credit and avert a Japanese-style trap.