Pound to Euro Rate Week Ahead Forecast: Push to €1.21

December 8, 2024 - Written by Frank Davies

STORY LINK Pound to Euro Rate Week Ahead Forecast: Push to €1.21

Wells Fargo forecasts that the Pound to Euro exchange rate (GBP/EUR) will strengthen to 1.2540 at the end of 2025.

In contrast, after initial strength, MUFG expects GBP/EUR will be held to 1.2050 at the end of next year.

During the week, GBP/EUR strengthened to near 1.2100 before settling with a small net gain to around 1.2065.

The French government collapsed after losing a no-confidence vote and Barnier will continue in a caretaker role until a new Prime Minister is nominated by President Macron.

The 2025 budget has been lost and fiscal policy will remain a key concern.

ING commented; “The chaotic debate over the 2025 budget leaves the tax landscape murky, but one thing is clear: the ballooning budget deficit will force the government to tighten its fiscal belt, stifling economic growth.”

There are also further concerns over the wider economic outlook with declines in German industrial orders and production.

The ECB is expected to cut interest rates again in December.

Wells Fargo expects rates to be cut to 1.75% and commented; “given softness in recent sentiment and improvement in underlying inflation data, we suspect ECB policymakers will deliver that easing quicker than previously envisaged.”

It added; In addition, concerns around the Eurozone growth outlook could be reinforced if President-elect Trump decides to levy tariffs on the Eurozone, which is our base case scenario. Given this slate of factors, we expect the euro to soften over our forecast horizon.”

HSBC expects the December rate cut will be held to 25 basis points.

Nevertheless, it added; “We expect a dovish shift to the statement, though. We think that aiming to “keep policy rates sufficiently restrictive for as long as necessary” could be replaced by something like an intention to “remove restriction gradually” if the outlook evolves in line with the forecast.”

According to Credit Agricole The GBP to benefit from the more resilient UK economic outlook vs Europe and more gradual BoE cuts vs the ECB.

ING expects a boost to the UK economy; “The government plans to spend an extra 1.5% of GDP (£40bn) in current spending in the next financial year, and given much of that ends up as salary rises and employment, the multiplier effect is likely to be pretty strong.”

If US tariffs are deployed, MUFG expects relative UK out-performance compared with the Euro-Zone; “The market pricing on rates implying that the UK could be better positioned to deal with trade tariffs does make some sense. Two-thirds of UK exports to the US are services, and goods exports are equivalent to about 2.0% of UK GDP.”

Despite stronger growth, ING expects UK services-sector inflation to decline to 3% and added; “If we're right, that heralds faster rate cuts in the spring. We expect a rate cut in February to be followed in March, and at every meeting until rates reach 3.25% later next year.”

It expects the faster pace of rate cuts will limit Pound support.

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TAGS: Currency Predictions Pound Euro Forecasts