Pound to Euro Exchange Rate Forecast For Week Ahead: 1.1365-1.1905
STORY LINK Pound to Euro Exchange Rate Forecast For Week Ahead: 1.1365-1.1905
Foreign exchange analysts at Bank of America forecast that the Pound to Euro exchange rate (GBP/EUR) gains will extend to 1.1905. Credit Agricole sees scope for a near-term correction before a medium-term move to 1.1905.
Danske Bank expects a decline to 1.1365 on a 6-12-month view, but notes that French political uncertainty and Bank of England policy could jeopardise this forecast.
The Euro posted sharp losses after the weekend European elections with the main attention on France where President Macron’s centrist Party was defeated by the right-wing National Rally.
In response, Macron called early parliamentary elections with the first round on June 30th.
The Pound broke above key resistance at 1.1765 and extended gains during the week as the Euro remained under pressure with 22-month highs just above 1.19 before settling around 1.1860.
ING commented; “We’re not French political experts, but it looks like the euro is taking another leg lower on news that the French parties of the Left are getting their act together to form a coalition and only run one candidate per district between them. This rare cooperation of the Left stands to suck support from President Macron’s party further.”
According to Danske; “EUR/GBP continues to be weighed down by the French President Macron’s decision to call snap parliamentary elections, which has sparked political uncertainty. We acknowledge that we see risks to both growth and inflation as tilted to the topside, leaving a more challenging backdrop for an impending BoE cutting cycle. By extension, this also acts as a downside risk to our EUR/GBP forecast.”
HSBC commented; “Heavy defeats for the parties of French President Macron and Germany’s Chancellor Scholz point to possible big shifts in the political landscape in core Europe. Macron’s unexpected decision to call a snap legislative election will test whether the European results are echoed at a national level.”
It added; “The EUR is justifiably lower across G10 FX as the market reprices its political risk premium.”
UK data had limited impact during the week with no change in GDP for April. The unemployment rate increased to 4.4% in the three months to April from 4.3% previously and the highest rate since September 2021. The inactivity rate increased to the highest level for close to 10 years.
Wage pressures were still elevated with underlying wages growth remaining at 5.9% and compared with expectations of 5.7%.
Credit Agricole targets an EUR/GBP decline to 0.84, but added; “We see a risk that the updated MPC policy statement and the incoming UK data next week could encourage investors to bring forward their rate cut expectations.”
Bank of England decision will be crucial over the medium term.
It added; “Given that the GBP is already looking somewhat overbought and EUR/GBP in particular is trading well below its short-term fair value, the GBP could be vulnerable especially if UK data releases and the BoE meeting trigger profit taking on stretched long market positions.”
According to NatWest; “With only 40bp of BoE easing now priced for end-24 against the view of NatWest economists for 75bp, there remains scope for Sterling to soften against the EUR in coming months.”
As far as the General Election is concerned opinion polls pointed to a further erosion of Coservative Party support with expectations of a very substantial Labour majority.
HSBC commented; “Some may believe the election will be GBP positive. A Labour Party victory is the most likely outcome as per latest polls, which points to the possibility of warmer UK-EU ties and a stronger fiscal impulse, thus strengthening the outlook for the GBP.”
It added; “However, we think this is not so straightforward. GBP is still likely to be driven more by the BoE’s monetary policy outlook versus other central banks rather than the immediate aftermath of the coming election. The pound remains beholden to rates and, in our view, appears to be too strong against both the USD and EUR, based on respective rate differentials.”
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