Movements in Value of the Pound against the Euro

The paper shows that FOREX experts thought that the pound would begin the year 2003 on an optimistic note but unfortunately for the pound, that year also began with a downward trend against the Euro and continued till the year-end. The first quarter saw the pound value against euro drip by 5.8% from 1.539429 to 1.449098. It further continued the downward journey to 1.438329 by the end of the second-quarter reaching its lowest of the year at 1.397857 on May 30. The decline in the second quarter was 0 .7 % and negligible when compared to the first-quarter decline. On the whole, the pound dropped by 6.56 % during the first half of the year which had seen the euro rise against the pound from 0.649591to 0.695251. The following table and the subsequent graph show the decline of the pound against the Euro as explained earlier in the first half of the year 2003.

The European Central Bank (ECB) has continued with a policy of consistency in bank rates boosting up the morale of the Euro in FOREX markets. In January and February 2003, the Governing Council of ECB decided to continue with existing rates of 3.75% and 1.75 % for marginal lending and deposit facilities respectively. The minimum bid rate on main refinancing operations also continued to be at 3.75% putting at rest all the rumors. This was followed by a report, released on February 24, 2003, that claimed that the solvency levels of EU banks also continued to be even stronger. The regulatory capital ratio for the EU banking system stood at 12% as against the minimum requirement of 8% in the preceding two years of 2001 and 2002, according to this report (Press release, 24 February 2003-EU Banking sector stability, The banking sector has remained stable).
While these decisions helped the Euro maintain its stability and uptrend against the pound, some unfavorable trends persisted on the home ground for the latter currency adding fuel to the&nbsp.fire.&nbsp.