Pound to Euro Rate Week Ahead Forecast: French Fears in Focus

December 1, 2024 - Written by Ben Hughes

STORY LINK Pound to Euro Rate Week Ahead Forecast: French Fears in Focus

Bank of America (BoA) has changed its forecasts at now expects that the Pound to Euro exchange rate (GBP/EUR) will strengthen to 1.25 at the end of 2025 from 1.2150 previously.

The bank also expects further gains to 1.30 at the end of 2026.

In contrast, ING expects GBP/EUR will surrender interim gains to trade at 1.19 at the end of 2026.

GBP/EUR secured a net advance to 1.2030 during the week amid expectations that the Bank of England would maintain a slow pace of rate cuts with net yields supporting the Pound.

According to BoA; “we have been constructive on GBP, as the domestic backdrop was propelled by the strength of the service sector economy, something that we think will also help to insulate the economy from the threat of tariffs.”

BoA played down fiscal vulnerability; “There are risks as always to any forecast profile – deteriorating risk sentiment, higher volatility, but for now, we do not think that the UK Budget is an imminent threat.

It added; “fiscal stimulus, robust domestic fundamentals and higher for longer rates should provide the main pillars for support in 2025.”

Danske Bank maintains a positive Pound stance; “We expect the BoE to opt for a more gradual cutting cycle and deliver its next cut in February, a key argument for our bullish GBP view.”

Barclays is cautious over the UK outlook; “Yet, the next year is still likely to be a challenging one for the UK economy, in the face of both cyclical (fiscal pressures and higher unemployment rate) and structural (low productivity and labour force participation) headwinds. Therefore, the optimists may have to look beyond 2025 for sunnier economic uplands.”

HSBC is far from bullish on the Pound, but considers that it the relative position is stronger than the Euro.

According to the bank; “The UK shares neither US optimism for fast paced, fiscally stimulated growth, nor the same fears of political fragmentation, economic deterioration, and exposure to US tariff threats as the eurozone. Persistent inflation keeps the GBP higher than it otherwise would be, forcing the Bank of England to stick with a very gradual easing path.

HSBC is, however, wary over forecasting further near-term Euro losses; “While we remain EUR bears, the problem is that a lot of negativity is already in the price.”

There were further losses for French bonds during the week as the government attempted to secure parliamentary approval for the 2025 budget.

According to Nordea; “the 10-year spread between German and French 10-year government bonds hit multi-year highs, as there are growing doubts whether the current Prime Minister Barnier can survive passing next year’s budget. The uncertain political situation is already visible in French confidence numbers, and is unlikely to ease soon.”

MUFG added; “The lack of majority in parliament to support much needed fiscal consolidation continues to provide an unfavourable backdrop for French government bonds.”

Economic data did not have a major impact during the week while there was mixed rhetoric from ECB council members.

Schnabel warned that there was only limited scope for further interest rate cuts while commentary from other officials was more dovish.

Overall confidence in the Euro area economy remained weak with strong expectations of a further interest frate cut in December.

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: Currency Predictions Pound Euro Forecasts