Pound-to-Euro Week Ahead Forecast: GBP Rally Faces Test from UK GDP

– Written by


James Fuller

STORY LINK Pound-to-Euro Week Ahead Forecast: GBP Rally Faces Test from UK GDP

The Pound to Euro exchange rate (GBP/EUR) has retreated modestly after reaching 16-month highs above 1.1820, with analysts questioning whether Sterling’s recent rally is approaching its limits.

French fiscal concerns and expectations of a November Bank of England rate hike continue to favour the Pound, but Crédit Agricole warns that weaker UK economic data could trigger a correction towards 1.1630.

GBP/EUR Forecasts: Peak Pound?

Credit Agricole is not convinced that the Pound to Euro (GBP/EUR) exchange rate can make further short-term headway with the risk of a correction to 1.1630, but sees scope for gains to 1.19 by the end of next year.

GBP/EUR strengthened sharply to 16-month highs just above 1.1820 during the week before a limited correction with French fears undermining the Euro.

ING notes the potential for a further test of 1.1820 and added; “That should be tested if it looks like the BoE is ready to hike in November and there is outside risk to the 0.8400 area (1.19 for GBP/EUR), while the French budgetary position remains unresolved.”

Citi head of G10 FX strategy Dan Tobon is bearish on the Euro; “The asymmetry around where the euro can go is very much skewed to the downside. And one place that that could come from most easily is from a policy error by the ECB over-tightening into a market that can’t withstand it anymore.”

He added; “As of right now, this skew is very much looking ugly for Europe.”

Credit Agricole is not convinced the Pound can advance further even with scope for safe-haven demand; “we believe that there is a limit to the current appeal of the GBP over the EUR. For starters, we believe that incoming UK data like next week’s GDP data for August could highlight the fragility of the economy to tightening financial conditions and persistent stagflationary headwinds.

French developments will remain a key element.

MUFG commented; “The performance of the euro heading into year-end will depend more on the fallout from the French government bond market sell-off including evidence of contagion and how policymakers react with risks currently skewed towards further weakness.”

The bank added; “Negative developments in the euro-zone have boosted the relative appeal of the pound. While fiscal concerns are also in focus in the UK with 10-year Gilt yields hitting their highest levels since prior to the Global Financial Crisis in 2007, they are not as acute as in France currently.”

There are strong expectations that the Bank of England will increase interest rates at the November meeting and traders are still pricing in four rate hikes by Autumn 2027.

Commerzbank expects a shift in pricing next year will hurt the Pound; “It is only from the second quarter of next year that we expect sterling to come under renewed pressure against the euro. Following the February meeting, we expect those additional tightening expectations to be gradually priced out, putting sterling under renewed pressure.”

Like this piece? Please share with your friends and colleagues:

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: Pound Euro Forecasts