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Eurozone debt crisis have effect on exchange rates

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Eurozone debt crisis 'will have big effect on exchange rates this year'

The ongoing debt crisis in the eurozone is likely to continue affecting exchange rates during 2013, experts have suggested.

According to the RBS Group, developments in the financial bloc will be "as important as ever" over the coming 12 months.

This, it stated, is because the euro is likely to get weaker this year, despite suggestions from European Commission president Jose Manuel Barroso that the "existential threat" against the currency has now been overcome.

The RBS Group said it is difficult to predict exactly when the next "flare-up" in the eurozone will take place.

However, it stated that GPB/EUR is likely to return to the "mid-2012 highs" at some point this year.

"Against the dollar the story is more subtle – a stronger recovery in the US and ongoing uncertainty in the global economy should support the dollar," the group commented.

Nevertheless, the RBS Group acknowledged that this will be "tempered by frustratingly slow progress on US debt problems", as well as its "persistently loose" approach to monetary policy.

"We therefore expect GBP/USD to drift lower towards the middle of the 1.53-1.63 band," it said.

The RBS Group went on to note that 2012 in the UK was characterised by further policy easing and no growth in the economy.

Forecasts suggest that this will not be the case this year, with the economy seeing subdued growth and no policy easing at all.

However, the RBS Group conceded that the financial environment remains extremely uncertain at the moment, as the eurozone debt crisis and the prospect of five more years of austerity is denting both business and consumer confidence.

The organisation added that the Bank of England is unlikely to reduce interest rates any further over the coming months.

They are already at a record low of 0.5 per cent and have been held at this level since March 2009.

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