Pound to Euro Forecast For Week Ahead: Where Next for GBP/EUR?

April 28, 2024 - Written by John Cameron

STORY LINK Pound to Euro Forecast For Week Ahead: Where Next for GBP/EUR?

ING forecasts the Pound to Euro exchange rate (GBP/EUR) will weaken to 1.1365 at the end of 2024 as the Bank of England cuts interest rates more aggressively over the second half of 2024.

Credit Agricole expects Euro-Zone manufacturing weakness will be crucial in hurting the Euro and GBP/EUR will strengthen to 1.19.

GBP/EUR hit 3-month lows at 1.1570 early in the week before a strong rebound to 1.1665.

At the beginning of the week, markets were confident that the Bank of England (BoE) was on track for an early cut in interest rates and the Pound remained under pressure.

There was, however, a change in narrative during the week following the latest BoE comments.

Chief Economist Pill stated that there had been progress on inflation but added that; “the time for cutting Bank Rate remained some way off."

Pill’s comments dampened expectations that there will be majority support for a near-term rate cut which boosted the Pound.

The UK currency also drew some support from equity markets during the week with the FTSE 100 index, for example, posting fresh record highs during the week.

Markets have continued to discuss the economic fundamentals for the UK and Euro-Zone, together with the currency-market implications.

According to the PMI business confidence data, the UK manufacturing sector dipped back into contraction territory, although there was a stronger reading for services with the index at an 11-month high.

According to RBC the trend is improving; “The UK economy was at its weakest point around the middle of 2023 with a recovery in activity identifiable since the autumn of last year. That rebound in the activity is likely a function of developments in real wage growth which means that the momentum in activity should be sustained as inflation continues to fall faster than wage growth.”

It added; “The BoE will, therefore, be cutting into an economy that is recovering both earlier and more strongly than previously thought.”

RBC added; “We expect the MPC to deliver a first 25bps rate cut at its August meeting. Overall we see the MPC delivering 50bps of rate cuts this year (at the August and November MPR meetings) and 100bps of cuts in total between now and end-2025 leaving the terminal Bank rate well above the previous lows.”

ING commented; “We have been long discussing the potential for EUR/GBP to move higher later in the year as the policy divergence balance shifts against the pound. However, we cannot ignore that EUR and GBP have had similar reaction functions to US data since the start of the year.”

The bank does not expect a significant shift in ECB expectations and added; “this suggests that only another round of repricing in BoE expectations can really stir the pair. The BoE policy meeting on 9 May is obviously the next big event for the pound, but data may still prove more important given a divided MPC.”

The German IFO business confidence index posted a third successive monthly improvement which helped underpin confidence in the Euro-Zone outlook.

MUFG commented; “Lower rates in the euro-zone should help to ease headwinds to growth in the euro-zone. There are already tentative signs that euro-zone economy is beginning to pick-up at the start of this year as the headwind to growth from higher inflation fades.”

There are still very strong expectations that the ECB will cut interest rates in June.

Credit Agricole maintains a negative stance on the Euro due to weak industrial data. It noted; “the data further highlighted the growing divergence between the improving prospects for the services sector and the still-dire manufacturing outlook. This further stressed the need for a weaker EUR for longer to help Eurozone exporters regain their competitiveness in international markets.”

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TAGS: Pound Euro Forecasts