STORY LINK Pound to Euro Week Ahead Forecast: 1.1630-1.2050 Range in Next Three Months
Danske Bank expects that the Pound to Euro (GBP/EUR) exchange rate will strengthen to 1.2050 on a 3-month view before fading.
In contrast, ING expects that GBP/EUR will retreat to 1.1630 on a near-term view.
The Pound and Euro both made gains during the week as the dollar posted notable losses, but the Pound was the clear winner.
GBP/EUR advanced to 3-week highs near 1.1830 and settled just above 1.18.
Risk trends were broadly positive, especially late in the week. HSBC commented; “GBP has become more beholden to risk appetite over the past two months so the sea of green in European equities and US equity futures is likely proving supportive to GBP.”
The latest UK PMI business confidence data beat market expectations with the manufacturing sector at a 26-month high and the services sector at a 4-month high.
Markets were continuing to assess Bank of England (BoE) policy with the data flow continuing to dampen expectations of aggressive rate cuts with only one further rate cut this year.
BoE Governor Bailey commented on latest data; “This is consistent with a process of disinflation which is steady and more in keeping with a soft landing than a recession-induced process.”
Bailey summarised that the bank would be “careful not to cut interest rates too quickly or by too much.”
Rabobank’ Stefan Koopman commented; “We’re witnessing headline inflation inching towards 2.75%-3.00% by year-end, and unemployment may steady. CPI and survey data shows underlying inflation is indeed receding, but at a snail’s pace.”
He added; “Consequently, the data should arm the MPC hawks with enough ammunition to advocate for a cautious and gradual adjustment.”
Danske Bank commented on EUR/GBP; “With the UK economy continuing to outperform the euro area, more political certainty and combined with our expectation of the BoE delivering fewer cuts than what markets are pricing, we expect these forces to weigh on the cross in the next 1-3M.” (GBP/EUR gains)
The bank added; “Further out, we expect continued weak global growth, the risk of a more dovish BoE compared to peers and continued global tight monetary conditions to weigh on GBP.”
Euro-Zone data showed some resilience with strong growth in the services sector, but German manufacturing remained a bleak spot with the 19th successive month in contraction territory.
According to Kallum Pickering, chief economist at Peel Hunt; “the surveys show the UK is still a relative bright-spot among major European economies amid continued weakness in the Eurozone.”
He added; “Germany’s export-and-production-oriented economy continued to struggle as domestic consumer softness and geopolitical uncertainties hurt sentiment.”
Markets are confident that the ECB will cut interest rates again at the September policy meeting.
ING is still concerned over underlying wage trends and expects ECB caution; “the new stagflationary risk is not yet large enough to stop the ECB from cutting rates again in September. However, it looks like a more complicated decision than markets are currently pricing in.”
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TAGS: Pound Euro Forecasts
