Euro to Pound Forecast: "EURGBP consolidate around 0.87" say Barclays

November 28, 2023 - Written by Tim Boyer

STORY LINK Euro to Pound Forecast: "EURGBP consolidate around 0.87" say Barclays

The Pound Euro exchange rate (GBP/EUR) hit 3-week highs at 1.1550 on Monday before settling around 1.1535 with little change on Tuesday.

UK equities retreated on Monday and registered further losses on Tuesday with weaker risk conditions tending to limit the scope for further Pound buying.

Andrew Jones, portfolio manager at Janus Henderson Investors commented; "It's worth reminding ourselves that for the last couple of weeks, markets have been quite strong with the expectation that inflation's finally starting to come off in most places."

He added; "Rather than being any specifically negative news coming out it’s a bit of a pause having had that rally."

The British Retail Consortium (BRC) reported that UK shop prices increased 4.3% in the year to November from 5.2% previously.

This was the sixth successive decline in the annual rate and the lowest reading since June 2022.

Fresh food prices increased 6.7% in November from 8.3% previously and compared with the March peak of 17.8%.

BRC chief executive Helen Dickinson commented; "Shop price inflation eased for the sixth month in a row as retailers compete fiercely to bring prices down for customers ahead of Christmas.

She still warned over fresh setbacks for companies; “They face new headwinds in 2024 - from government-imposed increases in business rates bills to the hidden costs of complying with new regulations. Combining these with the biggest rise to the National Living Wage on record will likely stall or even reverse progress made thus far on bringing down inflation, particularly in food."

Bank of England Governor Bailey continued to push back against market expectations of lower interest rates.

On Monday he commented; "we do have to get (inflation) down to 2% and that's why I have pushed back of late against assumptions that we're talking about cutting interest rates or we will be cutting interest in anything like the foreseeable future because it's too soon to have that discussion."

According to Commonwealth Bank of Australia strategist Carol Kong, the data has shown some resilience, but she added; "we still expect the UK economy to weaken and experience a short-lived recession."

Barclays Bank sees the risk of stalemate for now; “In the near term, the GBP remains caught in a tug-of-war between mounting evidence of demand damage and sticky wage growth and inflation, implying considerable policy inertia.”

It added; “The government's fiscal announcements last week add on the margin to the case for higher rates for longer and should help EURGBP consolidate around 0.87.” (1.1500 for GBP/EUR).

In testimony to the European Parliament on Monday, ECB President Lagarde continued to warn over inflation.

According to Lagarde; "This is not the time to start declaring victory, we need to remain attentive to the different forces affecting inflation and firmly focused on our mandate of price stability."

Lagarde did indicate that the bank would discuss a faster rate of bond selling which would tend to put upward pressure on market rates and support the Euro.

According to Socgen, market expectations are too aggressive; “The downward inflation momentum should continue in November and could add weight to the narrative that the ECB starts cutting rates in 1H24. However, we believe this narrative could well be turned on its head in early 2024, as governments unwind their energy support measures, and core proves to be sticky, resulting in core and headline only falling to 2.5% by end-2024.

It added; “Markets are expecting headline inflation to return to 2% in late summer 2024, but we think they may be proven wrong.”

ING commented on EUR/GBP; “We suspect the pair may be reaching the bottom of its recent downtrend, as risk sentiment may start to soften into key US data and the UK fiscal event’s impact on markets wears off.

It added; We expect increasing support for the pair around 0.8650 and at the 0.8640 100-day MA. (resistance between 1.1560-1.1575 for GBP/EUR).

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TAGS: Euro Pound Forecasts Pound Euro Forecasts