Pound to Euro Exchange Rate Forecast: 1.2050 by End of 2024

July 14, 2024 - Written by John Cameron

STORY LINK Pound to Euro Exchange Rate Forecast: 1.2050 by End of 2024

Foreign exchange analysts at BNP Paribas expect that the Pound to Euro (GBP/EUR) exchange rate will strengthen to 1.2050 at the end of 2024.

In contrast, after initial stability, ING expects a slide to 1.1365 on a 12-month view.

During the week GBP/EUR strengthened to 23-month highs around 1.1915 amid fresh doubts over an August Bank of England (BoE) rate cut.

In latest comments, BoE chief economist Pill stated that an interest rate cut was still a question of when and not if, but he was also still concerned over inflation trends within the economy with a particular focus on the services sector.

In this context, he preached caution and suggested he would be reluctant to sanction an early cut.

Markets now consider that the chances of an August cut are just below 50% with the shift in expectations underpinning the Pound.

The latest UK GDP data was also stronger than expected with 0.4% growth for May which underpinned confidence in the economy.

BNPP considers that the UK General Election win for Labour with a huge majority is positive for the Pound as it signals a period of political stability.

According to the bank; “We'll also be watching the scope for UK-EU relations to improve under a Labour government as well as the possibility for growth-positive reforms and spending policies.”

It does consider that the election outcome was widely expected and priced in which will limit the scope for further buying.

RBC Capital Markets considers that the lack of flexibility in fiscal policy will be a key area of vulnerability.

A tight spending round would hamper the growth potential while a more expansionary policy would risk losing market confidence.

According to RBC; “GBP faces more asymmetric risk to the downside than to the upside. Namely, this is down to the constrained fiscal backdrop not leaving much space for flexibility, and any deterioration in fiscal policy credibility would leave GBP vulnerable.”

ING added; “the new British government is facing a significant public finance challenge, which might lead to higher taxation already in the first year – a GBP negative.”

Monetary policy will also be a key element and BNPP notes the potential for an August Bank of England rate cut which would trigger short-term selling pressure on the Pound.

Nevertheless, BNPP added; “As long as the BoE pursues policy easing in a cautious manner, we would not view this as a reason to stop expecting GBP outperformance over the medium term.”

Rabobank expects gradual Pound gains; “We expect that GBP will continue to edge higher in the months ahead on hopes that investment growth can recover from a very low base. We maintain our long-term target of 0.84 (1.19 for GBP/EUR) and see risk of a break below this level medium-term.”

Euro-Zone politics will be watched closely with a particular focus on France.

ING commented; “The pound has also been rather sensitive to French political risks, which may not dissipate soon.”

Nevertheless, ING expects three Bank of England interest rate cuts this year which will sap Pound support.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts