Pound to Euro Week Ahead Forecast: 1.156-1.19 Range This Year

April 7, 2024 - Written by John Cameron

STORY LINK Pound to Euro Week Ahead Forecast: 1.156-1.19 Range This Year

Currency strategists at Nordea forecast that the Pound to Euro exchange rate (GBP/EUR) will strengthen to 1.19 at the end of 2024 with a further advance to 1.22 at the end of 2025.

MUFG, however, expects a Sterling-Euro retreat to 1.1560 at the end of this year.

GBP/EUR overall lost ground during the week with 7-day lows near 1.1650.

The data releases had only a limited impact, but final data for the PMI services-sector data indicated Euro-Zone improvement. Services-sector growth hit a 9-month high and the economy overall edged into expansion territory for the first time in 10 months. In contrast, the rate of growth in the UK economy slowed slightly on the month.

ING commented; “The revision higher in the eurozone’s March PMIs yesterday meant the composite index no longer points to contraction, mostly driven by an improved outlook for services.”

Although the UK data was still stronger, it suggested an element of convergence which curbed Pound support.

Central bank policy decisions will inevitably be a key focus over the next few months.

According to Nordea; “The GBP will continue to do well going forward as the Bank of England will need to keep rates higher for a longer period than the Euro area due to a more sticky inflation.”

MUFG expects monetary policy developments will be crucial; “We are broadly neutral on the pound versus the euro although show some moderate upside in EUR/GBP with scope for expectations of the BoE easing more substantially over the easing cycle relative to the ECB which could become more of a factor influencing FX toward the end of the year when 2025 policy expectations will be more influential.”

Rabobank looks at former Fed Chair Bernanke’s forthcoming review of Bank of England operations.

The bank was critical over the bank’s performance; “The Bank of England lost control of inflation, produced wildly fluctuating forecasts and made numerous communication gaffes. Public trust in the central bank has plummeted.:

According to Rabobank; “The immediate impact on the market should be minimal. However, there’s a possibility that it may require time for the market to adapt to and accurately interpret a new strategy.”

The ECB will announce its latest interest rate decision during the week ahead.

Consensus forecasts are that the bank will keep rates on hold at this meeting while also giving strong guidance that there will be a cut in June.

According to Nordea; “The comments from the ECB Governing Council members increasingly point to a first 25bp rate cut in June, which we expect to be followed by quarterly 25bp rate reductions throughout the rest of this year and next.”

According to Danske We expect the key takeaway from next week's ECB meeting will be an affirmation of the prevailing ECB narrative, of the ECB on route to deliver a rate cut.”

It added; “we expect the ECB to deliver a clear commitment to a June rate cut, in the form of explicit guidance of an 'intention to cut by 25bp in June'.”

It considers longer-term uncertainty; “We expect no guidance will be offered beyond that point on the pace of cuts or the end level of the tightening cycle.”

NatWest looks at overall fundamental developments; “The Euro area current account position has improved as energy prices fell back. While the UK position also improved for the same reason, the country continues to run a large and persistent deficit. This can limit the extent to which GBP/EUR can rise.”

NatWest added; “We see GBP/EUR risks skewed higher over the next three months, although these are assessed to be fairly modest.

After initial gains to 1.1765, it expects a retreat to 1.1360 at the end of 2024.

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TAGS: Pound Euro Forecasts