Pound to Euro Forecast for Week Ahead: 1.20 Buying Back in Near-Term?

September 29, 2024 - Written by John Cameron

STORY LINK Pound to Euro Forecast for Week Ahead: 1.20 Buying Back in Near-Term?

Danske Bank expects that the Pound to Euro (GBP/EUR) exchange rate will strengthen to 1.2050 in the near term before a retreat to 1.1765 on a 12-month view.

ING also sees a near-term peak at 1.2050 while Nordea forecasts losses to 1.1365 at the end of 2025.

GBP/EUR hit 2-year highs at 1.2030 before settling just below 1.20.

UK data maintained expectations of solid growth while the latest Euro-Zone data releases had an important impact in undermining the Euro during the week.

There was a notably weak set of PMI business confidence data with a deeper rate of contraction in the German manufacturing sector and this was mirrored in the IFO data.

Berenberg commented; “The German economy has been stagnating for more than two years and the September purchasing managers' indices, which show that the private sector economy is shrinking more and more, give little hope of economic growth in the near future.”

The latest French inflation data was also much weaker than expected with the annual rate sliding to 1.2% and the lowest reading since August 2021.

The data triggered fresh speculation that the ECB could decide on another rate cut in October.

According to ING; “The EUR:GBP swap rate differential collapsed as markets increased bets the eurozone’s grim outlook will force the ECB into larger cuts than the BoE, and is now at -155bp, the widest since December 2023. That should keep some pressure on the pair in the near term.” (GBP/EUR gains)

Danske Bank also sees further UK out-performance in the short term; “We think these forces will continue to weigh on the cross in the next 1-3M. This is further amplified by continued tight credit spreads.”

It added; “Further out, we expect continued weak global growth, our expectation of a more dovish BoE compared to peers and continued global tight monetary conditions to weigh on GBP.”

Markets were also considering risks to the positive UK and Pound narrative.

HSBC focussed on 2025 monetary policy; “Our new forecast for Bank Rate continues to see one more rate cut this year (in November). But as we expect the MPC to gain greater confidence in disinflation, we expect a 25bp Bank Rate cut in every policy meeting next year, taking Bank Rate to 2.75% by next December, which should be about neutral.”

Rabobank is wary over fiscal policy; “It now appears that that initial wave of optimism has hit a wall of worry that has stemmed from the poor state of UK public finances. We continue to expect EUR/GBP to grind lower, but we continue to see the UK budget on October 30 as a hurdle for the pound.”

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TAGS: Pound Euro Forecasts