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Best Pound to Euro Exchange Rate for Sterling Sellers in 33 Months

December 12, 2024 - Written by David Woodsmith

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The Pound to Euro rate (GBP/EUR) strengthened further on Wednesday with gains to a 33-month high of 1.2135.

The March 2022 high was close to 1.2185 and any break above this level would lead to the highest levels since 2016 and potentially trigger further buying.

Jane Foley, senior forex strategist at Rabobank commented; “This raises the question as to whether sterling can achieve pre-Brexit referendum levels versus the euro in the foreseeable future.”

The bank sees scope for GBP/EUR gains to 1.2270 over the medium term.

Scotiabank chief FX strategist Shaun Osborne looks at the EUR/GBP technical outlook; “The cross has broken out on the downside of its recent consolidation range, trend strength oscillators are aligned bearishly across short-, medium– and long-term studies and there is nothing in the way of a test of major support at 0.82. (1.2195 for GBP/EUR.)

He added; “The cross has not traded below this point since Brexit. A push below here would be very significant from a technical point of view I believe.”

ING commented; “We think sterling can continue to perform well over the coming months (GBP pays the highest deposit rates in the G10 space), but our main concern is that the BoE turns more dovish in February once services inflation finally delivers another sizable leg lower.”

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The immediate focus will be on interest rates with very strong expectations that the ECB will cut interest rates again this week.

There are also expectations of relatively dovish guidance by the central bank.

In contrast, the Bank of England is set to hold rates at 4.75% at next week’s policy meeting.

HSBC notes the uncertainties surrounding UK inflation and added; "With risks remaining in both directions, gradual feels like the right approach for now.”

ING notes that over yields are continuing to underpin the Pound, especially as it makes it less attractive for companies to hedge Pound receivables.

As far as political developments are concerned, French President Macron has held talks with party leaders in an attempt to break the political deadlock, but has not yet nominated a new Prime Minister.

According to ING, this is another positive factor for the Pound; “a functioning UK government and some mild fiscal stimulus stand in contrast to the current political impasse in continental Europe. This means UK growth will be stronger than the eurozone's next year.”

Rabobank’s Foley commented; “Political uncertainty in France and Germany, in addition to a dovish ECB monetary easing path, could weaken the single currency in 2025.”

She added; "We anticipate that the euro will be under pressure next year, which is likely to allow EUR/GBP to remain on its slow downside trajectory. This suggests that pre-Brexit levels may creep into the sights.”
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