– Written by
Ben Hughes
STORY LINK British Pound to Euro Forecast: GBP/EUR Touches 6-Week Best Ahead of FED
The Pound to Euro exchange rate (GBP/EUR) slipped back from six-week highs to trade at 1.14406 as Sterling remained resilient despite yield dynamics tilting against the Pound.
With a BoE cut to 3.75% almost fully priced and the ECB expected to stay on hold, rate differentials are set to limit further gains.
This week’s UK data and BoE commentary will determine whether the pair can extend its advance.
GBP/EUR Forecasts: Fresh 6-Week High
The GBP to EUR rate touched 6-week highs just above 1.1460 in early Europe on Tuesday before settling above 1.1450.
The Pound has been broadly resilient against the Euro despite expectations that yields will move against the UK currency, but these expectations are liable to cap gains.
There are strong expectations that the Bank of England (BoE) will cut interest rates to 3.75% at next week’s policy meeting while the ECB is expected to hold rates at 2.0%.
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Markets are pricing in close to a 90% chance that the BoE will cut rates with further cuts next year.
Goldman Sachs commented; “We maintain our view that the MPC, which decides interest rates, is very likely to cut the bank rate in December, followed by three more cuts to 3 per cent next summer.”
Markets will be monitoring comments from Bank of England officials later Tuesday with UK data also monitored in case it triggers a shift in sentiment and expectations.
The latest GDP data is due for release on Friday.
Consensus forecasts are for a reported GDP increase of 0.1% for October after a 0.1% decline the previous month with a tentative rebound in industrial production following the slide the previous month.
XTB research director Kathleen Brooks commented; “Overall, some good news for the UK economy could be on the cards this week, although we continue to think that the underlying trend is for the economy to stall in the coming months.”
The ECB will announce its interest rate decision shortly after the Bank of England next week.
Markets are very confident that rates will be held at 2.00%.
According to Nordea; “The ECB will decide on monetary policy on 18 December, and it is highly likely that rates will be left on hold, as the central bank still considers monetary policy to be in a good place.”
From a medium-term perspective it added; “If anything, upside revisions to the September staff forecasts could further raise the threshold for another rate cut, and we expect the ECB to remain on hold throughout 2026, followed by rate hikes in 2027.”
MUFG commented on the outlook; “The hawkish comments have prompted the euro-zone rate market is price in higher probability of an ECB rate hike by the end of next year.
The bank added; “It poses a challenge to our forecast for one final ECB rate cut next year. A more likely scenario is rates remain on hold given the ECB hawks lack a majority. It would though support our forecast for a stronger euro if ECB turns more hawkish.”
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TAGS: Pound Euro Forecasts
