Pound to Euro Exchange Rate Forecast Ranges: 1.15 to 1.22

July 21, 2024 - Written by John Cameron

STORY LINK Pound to Euro Exchange Rate Forecast Ranges: 1.15 to 1.22

Citigroup forecasts that the Pound to Euro (GBP/EUR) exchange rate will strengthen to 1.22 at the end of 2024.

In contrast, after a strong start, ING still forecasts losses to 1.15.

GBP/EUR hit a 23-month high just below 1.1930 during the week before a retreat to 1.1870 amid overbought conditions.

As far as data is concerned, the headline UK inflation rate held at 2.0% for June compared with expectations for a marginal decline to 1.9% while the core rate held at 3.5%.

Importantly, the services-sector remained at 5.7%, well above the Bank of England’s comfort zone.

The annual increase in wages retreated to 5.7% from 6.0%, also still too high to be consistent with 2% inflation.

Overall, markets consider that the chances of an August rate cut are below 50%, but the Pound failed to gather further support.

The ECB made no changes to interest rates at the latest policy meeting with the refi rate at 4.25% and President Lagarde provided little in the way of guidance with the September decision described as wide open.

According to ING; “For once, the ECB really seems to be sticking to the plan not to give any forward guidance. And rightly so. Lagarde’s emphasis on data-dependency and a meeting-by-meeting approach confirm that there is no preset plan for the September meeting.”

According to BNY Mellon, further declines in inflation expectations and subsequent data confirmation is needed before the ECB can pick up the pace of easing.

Despite uncertainty over policy configuration and anticipated fiscal tightening, Citigroup maintains a modest rebound in Eurozone growth as a base case.

On a medium-term view, Citigroup Economics considers that; “the large Labour majority as giving the UK the ability to navigate legacy challenges associated with the fiscal and social overhangs from the pandemic, while also having potential to institute supply-side reforms (including an easing of trade frictions with the EU).”

According to the bank; “There are reasons for economic optimism in the medium-term, which should support GBP against other European currencies.”

It added; “We expect EURGBP will grind lower towards 0.82 (1.22 for GBP/EUR) while it remains below 0.85.”

Danske Bank also sees some Pound positives; “While we believe that fiscal spending is likely to remain constrained, closer ties to the EU, policies aimed at boosting growth/the supply side of the economy and less policy uncertainty are on balance GBP positives.”

The bank also considers that the near-term risk profile will remain positive.

Danske, however, does not expect the favourable external conditions will continue and added; “Further out, we expect continued weak global growth and continued global tight monetary condition to weigh on GBP.”

Credit Agricole is positive on the Pound, but considers that a lot has been priced in; “its current expensive valuation and significant long positioning suggest cautiousness in the near-term outlook. Upcoming UK PMIs will be critical in assessing whether economic recovery can sustain this momentum.”

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TAGS: Pound Euro Forecasts