British Pound to Euro Forecast: BoE Patience Boosts GBP

– Written by


David Woodsmith

STORY LINK British Pound to Euro Forecast: BoE Patience Boosts GBP

The Pound to Euro exchange rate (GBP/EUR) is pushing to its best levels in five months as investors scale back expectations for imminent Bank of England rate cuts, lifting UK-euro yield spreads and exposing the euro to a corrective pullback after last week’s sharp dollar-driven rally.

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GBP/EUR Forecasts: Pound Sterling Surges

The Pound to Euro (GBP/EUR) exchange rate has posted significant gains on Tuesday with a move to 5-month highs around 1.1585.

The Pound has held steady in global markets amid expectations that rates will not be cut this week while the Euro remains vulnerable to a correction after the surge against the dollar last week.

MUFG commented; “I think that delayed expectations for the Bank of England rate cuts is helping the pound to strengthen.”

According to Scotiabank; “The recent run of UK data has eroded a good portion of the easing that had been expected from the BoE, with markets pricing a 25bpt cut by June and less than 40bpts of cumulative easing by year-end.”

It added; “The GBP’s latest upswing appears to be fundamentally supported by the rise in

spreads.”

With no major data releases in the near term, the Pound will also be susceptible to wider market conditions with further volatility across precious metals.

MUFG is still bearish on the medium-term Pound outlook and forecasts GBP/EUR losses to 1.11 at the end of this year.

The Bank of England and ECB will both announce their latest interest rate decisions this Thursday with benchmark rates expected to be held at 3.75% and 2.0% respectively.

There has been a net shift in views from some investment banks. Rabobank commented; “The MPC remains split, and while Governor Bailey appears open to further easing, he must contend with hawkish concerns about inflation persistence.”

The bank has shifted its view slightly; “We initially pointed to next week’s meeting as a good opportunity for another 25 bp cut, largely on the basis of labour market weakness, but the data did not support that view.”

Rabobank is still confident over medium-term cuts; “The fundamental case for easier policy remains clear. We have therefore shifted our call by one meeting and now expect 25 bp reductions in March and June.”

ING also takes this view; “UK hiring conditions are weak and pay growth is slowing rapidly. But with headline inflation above 3% and the memories of the 2022 price spike still fresh, we expect the Bank to keep rates on hold this Thursday and keep its options open. We still expect a rate cut in March.”

As far as the Euro-Zone is concerned, France approved the 2026 budget on Monday and survived the latest confidence vote.

ING commented; “Markets have come to terms with the fact that it is nowhere close to the aggressive fiscal tightening of François Bayrou, but political stability is good enough compensation for kicking fiscal challenges down the road, for now.”

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TAGS: Pound Euro Forecasts