Pound to Euro Rate: Creeps Above 1.1700 on UK Growth Hopes

February 19, 2024 - Written by John Cameron

STORY LINK Pound to Euro Rate: Creeps Above 1.1700 on UK Growth Hopes

The Pound to Euro (GBP/EUR) exchange rate found support close to 1.1675 on Friday and settled below the 1.1700 level.

Narrow ranges prevailed on Monday with US markets closed with GBP/EUR creeping higher to just above the 1.1700 level.

ING expects that overall currency moves will remain limited; “Volatility in FX markets derives from volatility in interest rate markets, and because policy expectations are now sort of flat for the time being, we're not getting that source of volatility."

MUFG has recommended a long GBP/EUR position and it is sticking to this trade with an eventual target of 1.2085, although its overall confidence in the trade has dipped given the sharp dip last week from 5-month highs at 1.1765.

According to MUFG; “we maintain that the BoE will be a lot slower to commence rate cuts than the ECB. The ECB continues to talk tough on the need to see further evidence of weaker inflation and some evidence of slowing wage growth. In that regard, we continue to favour a move to the downside and a break of the 2023 low just below the 0.8500-level.” (1.1765 for GBP/EUR).

The data releases this week will be important for both the Euro and Pound.

Bank of England (BoE) policy expectations will continue to be an important market element.

In comments on Friday, BoE chief economist Pill maintained a cautious stance and continued to play down the possibility of an early interest rate cut.

According to Pill; "I do think that we will have to wait several more months before we can be convinced that the squeezing out of the persistent component of inflation is there.”

In this context, the latest PMI business confidence data this week will be important for Pound sentiment.

The UK services sector has been in expansion territory for the past two months, boosting confidence in the UK outlook.

The growth and prices evidence in the survey will be important for BoE expectations and market sentiment.

The latest Rightmove data recorded a 0.9% increase in house prices for February after a 1.3% increase the previous month.

There was also a marginal 0.1% annual increase in prices following six successive months of decline.

According to the survey, house sales in the first six weeks of 2024 are 16 per cent higher than over the same period last year, and three per cent higher than pre-pandemic.

Tim Bannister, Rightmove’s director of property science commented; “Momentum to move in 2024 is continuing to build, but prospective sellers mustn’t get carried away. Buyers now have more choice of property for sale and many are still very price-sensitive, with mortgage rates remaining elevated.”

He still noted potential bumps on the road: “Sellers who are serious about moving this year would be well-advised to ride this wave of increased buyer confidence with an attractive asking price before any pre-election jitters or unexpected events dampen the momentum.”

Euro-Zone developments will also be a key element and ING considers that there are two important data releases this week.

The latest survey on negotiated wage rates is due for release on Tuesday with the PMI business confidence data on Thursday.

As far as wages data is concerned, ING notes that a high figure could raise expectations of wider wage pressures. It also considers that this would wipe out any chance of an April rate cut.

It adds; “Any better-than-expected readings for February could also help the euro. For reference, consensus currently expects weak bounces in the eurozone PMI readings, but all readings remaining in contractionary territory.”

On a 12-month view, ING expects GBP/EUR will weaken to 1.1365.

MUFG considers that there could be a notable reaction on weak data; “There has been limited fallout in the markets from growth data this week in part due to expectations that growth is about to begin picking up. So if that does not show up in the advance PMIs it could prompt bigger rates and FX reactions.”

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TAGS: Pound Euro Forecasts