Pound to Euro Week Ahead Forecast: 1.1560 - 1.19 Ranges by End-2024

May 6, 2024 - Written by John Cameron

STORY LINK Pound to Euro Week Ahead Forecast: 1.1560 - 1.19 Ranges by End-2024

Foreign exchange analysts at MUFG expect limited Pound to Euro exchange rate (GBP/EUR) losses to 1.1560 at the end of 2024.

Credit Agricole, however, expects that GBP/EUR will advance to 1.1900 at the end of the year.

Dollar developments tended to dominate during the week, but the Pound lost ground ahead of the Bank of England (BoE) policy decision with GBP/EUR posting 1-week lows near 1.1650.

The short-term outlook will inevitably be dominated by the latest BoE policy decision due on May 9th.

According to Danske Bank; “We expect the BoE to prime markets for a rate cut at the meeting next week delivering the first cut of 25bp in June.”

As well as the interest rate decision, markets will also be examining the latest Monetary Policy Report and forward guidance from the bank.

MUFG commented; “While a June cut would be a close call, the drop in annual CPI to below 2.0% coupled with confidence of slowing wages as employment growth slows, we see it as more likely that the MPC votes to cut in June.”

In contrast, Credit Agricole expects a relatively hawkish BoE stance; “We think that despite the growing differences between the individual policymakers there would be a strong majority at the MPC in favour of stable rates with only Swati Dhingra voting for a cut. While this would be a repeat of the voting split from March we nevertheless think that the updated language of the policy statement could signal that rate cuts have become a more distant prospect for now.”

MUFG expects similar performances by the UK and Euro-Zone. It added; “We also have greater confidence that the euro-zone and the UK economies are picking up as the sharp reversal in energy prices starts to benefit growth.”

It added; “We assume therefore that there will be limited divergence between the UK and the euro-zone and forecast a relatively flat profile with a soft upside bias given the scope for the UK to cut more after a more aggressive tightening cycle.”

HSBC remains concerned over UK fundamentals; “The UK’s current account deficit remains persistent and is also primarily plugged by ‘other investment’ inflows, which are shorter term in nature and can be volatile. Sizeable other investment flows are a hallmark of the UK’s status as a financial hub but highlight a point of vulnerability for GBP especially if market volatility suddenly increases.”

The Conservative Party suffered heavy losses in local elections with markets also looking ahead to a General Election later this year. These are very strong expectations that Labour will win a majority.

Credit Agricole noted; “most clients seem to believe that a potential change of guard in Westminster could be good for the currency, mainly because a Labour government is expected to usher in a period of political stability – a welcome change following the tumultuous years of Tory rule. In addition, a Labour government is seen as helping improve the relationship with the EU further, albeit within the limits of the post-Brexit world.”

HSBC is more cautious over the situation; “Labour may have changed its position markedly since the days of former leader Jeremy Corbyn, but the UK is still looking at meaningful political and economic change in the near future.”

Credit Agricole expects the Euro will be resilient; The EUR could remain among the more resilient G10 currencies in the absence of any significant data disappointments or dovish surprises from ECB speakers.

According to the bank, money markets have pared back expectations of ECB rate cuts while there have been persistent portfolio inflows into the Euro area.

It added; “These developments have a common denominator – the recent evidence from sentiment indicators that the worst of the Eurozone economic downturn may be behind us.”

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TAGS: Pound Euro Forecasts