Pound to euro exchange rate – sterling surges as investors plan for rate rise

THE pound leapt in value this morning, surging 0.25 per cent against the euro during early trading, with gains of 0.58 per cent by mid-afternoon.

Sterling rose in value to 1.1124 euros as of 8.30am, going on to reach 1.1130 by 9am, compared to yesterday's close of 1.1102.

By 3pm, the pound was up to 1.1166 euros, buoyed by the news that EU trade talks could begin later this year.

The rise represented gains of 0.58 per cent in a good day for the pound against both the euro and the dollar.

The strong performance comes as traders plan for an expected interest rate hike by the Bank of England, and as EU leaders prepare for Brexit trade talks in December.

Another explanation for the rise in value is that many analysts and traders have already "priced in" the effect a bad Brexit deal would have on the pound.

This means that bad news is unlikely to have much more of an impact in the pound's value, but even small morsels of good news could have a positive effect.

Manuel Olivieri, a foreign exchange strategist at Credit Agricole, explained that this, coupled with the hopes of an upcoming rate rise, could explain the pound's performance.

The analyst said: "Well supported central bank rate expectations should prevent the currency from facing bigger downside risks, especially as a lot of negatives with respect to politics seem to be in the price by now."

Today's decent performance comes days after Bank of England governor Mark Carney was questioned about inflation and interest rates.

However, he failed to shed light on monetary policy - despite indications he will lift interest rates next month after inflation reached a five-and-a-half-year high.

The pound plunged as low as 1.0857 at the start of the month but has been making small gains in the past ten days.

Meanwhile, another factor weighing heavy on the euro is the ongoing Catalonia independence crisis in Spain, which has spooked many European investors.

What has happened to the euro conversion rate in the last few months?

The pound has seen a decline of almost 9 per cent against the euro since April this year and 12 per cent since the Brexit vote.

But with inflation at 3 per cent, a recent rally for the currency came amid speculation that the Bank of England may be about to hike interest rates to cool consumer spending and combat rising prices.

For investors, a rate hike is good news, as it means the pound gains more value while it's sat in buyers' bank accounts.

A rise in interest rates can also reflect an increase in general economic confidence, which will increase sterling's relative value on financial markets.

However, analysts think traders may be awaiting signs of better relations in Brexit talks before buying into the pound, with the markets still jittery thanks to the uncertainty involved in the divorce process.

Where is the best place to get euros?

Euros can be bought at supermarkets, the Post Office and currency specialists – but rates vary massively.

The best rates can often be found at specialist online outlets, such as Travelex, which will deliver your cash directly to your home.

Alternatively, FairFX offers currency cards which you can load up with sterling and then spend abroad like a debit card.