Pound to Euro Exchange Rate Forecast: 1.2050 on a 6-Month View

July 28, 2024 - Written by John Cameron

STORY LINK Pound to Euro Exchange Rate Forecast: 1.2050 on a 6-Month View

Rabobank expects that the Pound to Euro (GBP/EUR) exchange rate will make net gains to 1.2050 on a 6-month view.

According to the bank; “We have been calling for the pound to continue its slow grinding recovery for some time.”

ING expects near-term Pound losses; “we expect a broad-based GBP weakening next week when the Bank of England will – in our view – cut rates.”

During the week, GBP/EUR lost ground with a retreat to 2-week lows just below 1.1850.

The Pound was undermined by fresh speculation that the Bank of England (BoE) would cut interest rates at the August meeting with volatility in equities and a more cautious risk tone hampering the currency.

ING commented; “We expect a 6-3 vote in favour of a 25 basis-point rate cut on Thursday 1 August, though the meeting has become a close call.”

UBS also expects the BoE will play down the importance of higher-than-expected services-sector inflation and sanction a cut.

The BoE rate decision, however, is on a knife edge which will trigger further Pound volatility.

According to Wells Fargo; “while we expect an initial Bank of England rate cut in August and only a gradual pace of easing over time, we would not be surprised if central bank rate cuts were delayed even further.”

Rabobank is positive on the medium-term Pound outlook, but injected a note of caution given the jump in long positions; “While we remain of the view that the pound can continue to pick-up support, we see this as less straightforward call now that the market is holding long GBP positions.”

It added; “This positioning implies that the pound may become more sensitive to disappointing news or to dovish takeaways from the BoE which indicates scope for more volatility.”

The German IFO business confidence index retreated to a 3-month low of 87.0 for July from 88.6 previously, well below consensus forecasts of 88.9.

The data, following weaker than expected PMI business confidence data on Wednesday, will reinforce concerns over the outlook.

According to the IFO Institute; “Scepticism regarding the coming months has increased considerably. The German economy is stuck in crisis.”

According to Commerzbank Euro-Zone recovery hopes are in jeopardy and added; “Both the weak momentum in the sentiment indicators and the assessment of service prices are likely to encourage the ECB to cut key interest rates again in September.”

Rabobank remains uneasy over the Euro-Zone outlook; “The resilience of the currency this year appears out of step with the continued economic malaise of Germany’s manufacturing powerhouse.”

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TAGS: Pound Euro Forecasts