Pound to Euro: Best Money Transfer Rates of Five Months

January 30, 2024 - Written by John Cameron

STORY LINK Pound to Euro: Best Money Transfer Rates of Five Months

Dovish ECB Expectations Continue to Sap Euro Support, GBP/EUR Exchange Rate Hits Fresh 5-Month Highs

The Pound to Euro (GBP/EUR) exchange rate found support at 1.1700 on Friday and posted a further advance on Monday with a fresh 5-month high just above the 1.1730 level.

The Euro-Zone economic data releases and Bank of England (BoE) interest rate decision will be key elements this week.

Risk appetite will also be important with FTSE 100 index gains helping to support the Pound.

Markets expect that there will be dovish elements surrounding both the Euro-Zone data and BoE policy decision.

The key factor for GBP/EUR will be whether the overall balance of these dovish developments will lead to Euro or Pound selling.

According to MUFG; “We continue to hold a USD bullish bias and if GBP is to respond to a less dovish than expected BoE policy update, we see scope for EUR/GBP to extend the current move to the downside.”

The bank commented; “EUR/GBP is approaching the 2023 low of 0.8493 (1.1775 for GBP/EUR) and a break of that level should open up a more rapid move back to the 0.8400-level (1.1905 for GBP/EUR) that last traded in August 2022.”

The latest COT data released by the CFTC reported a further small increase in long non-commercial Sterling positions to near 31,400 from 30,900 the previous week and the largest long Sterling position since September 2023.

At the same time, the number of long Euro positions to near 88,000 from 104,000 the previous week and the smallest long position since November 2023.

According to MUFG, there is scope for a further adjustment in positioning; “IMM positioning certainly suggests capacity for further GBP buying.”

On the Euro side, economic data releases will remain in focus.

The more hawkish members of the ECB have continued to push back against expectations of an early rate cut, but markets remain convinced that an early move is likely.

Over the weekend, council member Knot stated; "We now have a credible prospect that inflation will return to 2% in 2025. The only piece that's missing is the conviction that wage growth will adapt to that lower inflation.

He added; "As soon as that piece of the puzzle falls in place, we will be able to lower interest rates a bit."

According to ING; “the market prefers to listen to the ECB doves, the data showing that activity is soggy and that inflation continues to fall further. The latter will receive more support this week in the form of fourth quarter of 2023 eurozone GDP data confirming a technical recession.”

The latest GDP data is due for release on Tuesday.

Consensus forecasts are for Germany to register a 0.3% contraction for the fourth quarter after a 0.1% decline previously.

For the Euro-Zone, expectations are for a 0.1% contraction for the quarter, the same performance as the third quarter which would represent a technical recession.

The Euro area will also release the latest inflation data this week.

Consensus forecasts are for the German inflation rate to decline to 3.3% from 3.7% the previous month.

As far as the Euro-Zone is concerned, the headline rate is forecast to edge lower to 2.8% from 2.9% with a core retreat to 3.2% from 3.4%.

Weaker than expected data would reinforce market expectations of an early ECB dovish pivot and undermine the Euro.

The BoE will announce its interest rate decision on Thursday with strong expectations that rates will be held at 5.25%.

Updated forecasts, the vote split and forward guidance will be crucial for the Pound following the meeting.

According to ING; “there could be some dovish hints at Thursday's BoE policy meeting, where the Bank could drop its tightening bias (both in its voting pattern and statement).

The bank considers that dovish BoE talk will dominate; “Even though it looks like we should see a soft week for the euro, a less hawkish BoE should see EUR/GBP hold strong support at the 0.8500 area. (1.1765 for GBP/EUR).

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TAGS: Pound Euro Forecasts