Pound to Euro Week Ahead Forecast: Settled around 1.1950

October 13, 2024 - Written by Tim Boyer

STORY LINK Pound to Euro Week Ahead Forecast: Settled around 1.1950

Foreign exchange strategistsd at Goldman Sachs expect the Pound to Euro exchange rate to strengthen to 1.22 (GBP/EUR) on a 12-month view.

GBP/EUR settled around 1.1950 as tight ranges prevailed during the week with caution surrounding geo-political risks and the UK budget.

Goldman expressed some caution on a near-term Pound view; “In the nearer-term, the outlook is still clouded, with geopolitical headwinds still likely impacting price action, and no clear domestic catalyst.”

Nevertheless, it remains positive on a medium-term view; “Overall, we see these set-backs to Sterling as more tactical factors, and believe our constructive view based on the more structural drivers of a risk-on global backdrop and positive domestic growth momentum remains intact.”

Euro confidence also remains fragile at best with economic, political and geo-political concerns.

A sharp decline in German factory orders reinforced concerns over the economic outlook and markets are convinced that the ECB will cut interest rates at this week’s meeting.

ING notes the risk of disappointment this week, but agrees on the direction of travel; “October or not, the change in the ECB’s reaction function will come and with more growth disappointments in the offing, we expect the ECB to step up the pace and potentially size of rate cuts, bringing the policy rate to 2% before the summer of 2025.”

The French government unveiled budget cuts in an attempt to bring the spiralling deficit under control, but there will be strong parliamentary opposition to the measures while Fitch downgraded the French credit rating outlook to negative from stable.

Credit Agricole notes that a further increase in oil prices would hurt the Euro-Zone and also noted political risks; “potential trade tariffs after the November US presidential election could hurt the Eurozone’s export-driven economy and the economies of its main trading partners.”

UBS commented; “the lower Eurozone inflation data and our revised ECB forecast point to a slightly lower spot rate at the margin.”

Markets are also convinced that the Bank of England will cut rates in November and the medium-term BoE stance will be crucial.

Bank of America commented; “We think the data continues to challenge the case for faster cuts in the UK. So we continue to expect quarterly cuts from the BoE given inflation persistence risks with the next cut in November, four quarterly cuts in 2025 and two cuts in 2026.”

Credit Agricole considers that downside Pound risks have eased; “We further note that the GBP no longer looks as overbought or overvalued as before.”

There are still some trepidations over the end-October budget with Chancellor Reeves expected to raise taxes even if debt rules are tweaked to allow increased borrowing.

MUFG commented; “While we are not expecting a repeat of the unfavourable market reaction to the Truss budget when the GBP temporarily fell sharply by over 3%, the government’s upcoming budget does pose some downside risk for the GBP if it triggers investor unease.”

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TAGS: Pound Euro Forecasts