The Pound to Euro (GBP/EUR) exchange rate has posted gains to a 23-month high close to 1.1930 this week before a retreat to 1.1875.
The Pound has drawn support from optimism over the political environment and reduced expectations of an August Bank of England rate cut.
Danske sees scope for near-term gains for 1.2050 and, although it expects a retreat to 1.1765 on a 12-month view, this is a notable upgrade from the previous forecast of 1.1365.
According to Danske, the new Labour government has little room for flexibility on fiscal policy, but also considers that the potential for supply-side reforms and closer ties with the EU will be positive factors for the economy and the Pound.
Danske also considers that the economy is proving resilient and with evidence of stubborn inflation this will make it difficult for the Bank of England to ease policy aggressively.
Overall, it expects a first BoE rate cut in September, but sees this as a close call with a possible August move. It expects one further cut before the end of 2024.
Risk conditions will also be important and Danske expects conditions will be less favourable over the next 12 months as a whole which will tend to limit Pound support.
