EUR/GBP Forecast: Euro Woes Continue to Support the Pound

October 24, 2024 - Written by Frank Davies

STORY LINK EUR/GBP Forecast: Euro Woes Continue to Support the Pound

The Pound to Euro (GBP/EUR) exchange rate found support below 1.2000 on Tuesday and strengthened to 1.2030 on Wednesday, close to 30-month highs.

The Pound has been relatively quiet in global markets while the Euro has remained under pressure amid expectations of faster interest rate cuts.

According to Danske Bank; “GBP continues to benefit from UK growth outperformance relative to the Eurozone.

The bank sees the potential for GBP/EUR to extend gains to 1.2350 on a 6-month view. That would be the strongest level for over 8 years.

Euro vulnerability is likely to continue, but uncertainty surrounding UK fiscal policy could serve to limit the scope for near-term GBP/EUR gains.

Rabobank commented on the Euro; “It is likely that a large part of the single currency’s resilience through much of this year has been drawn from the view that the ECB would be cautious in cutting interest rates. However, this view is changing.”

ING noted; “Even the most hawkish members like Austria’s Holzmann decided not to push back against market pricing for back-to-back ECB cuts into mid-2025, and President Christine Lagarde reiterated her generally dovish tone at a TV interview yesterday.”

According to Holzmann; “the deflationary process was much faster than we had thought.”

On rate cuts he added; “I’m sure there will be others following in the future, and not too far.”

Portugal's central bank head Centeno has continued to warn about inflation falling too low.

He commented; "I see more risks in undershooting target inflation than the other way around and most of the risks that we see, the downside risks that we see right now in our projections, they are endogenous.”

Rabobank added; “Even though Rabo’s central view is that the ECB will stick to 25 bps rate cut increments, it is possible that a more dovish ECB will remove the support which appears to be preventing the EUR from facing up to Germany’s structural economic woes.”

There have been no major UK data releases this week, although the latest survey evidence suggested a further easing of wage pressures.

According to human resources data company Brightmine, pay rises slowed to 4.0% in the third quarter from 4.8% in the second quarter while expectations surrounding increases for the coming year slowed sharply to 3% from 6% last year.

Sheila Attwood, senior content manager at Brightmine did note that there were still areas where the labour market is tight; "While pay awards are expected to decline in 2025, businesses are continuing to find creative ways to support their workforce, particularly by addressing skills shortages and retaining key talent."

Markets remain very confident that rates will be cut at the November Bank of England (BoE) meeting, but inflation doubts will potentially deter a more aggressive BoE stance.

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: Euro Pound Forecasts