– Written by
David Woodsmith
STORY LINK British Pound to Euro Forecast: BoE Testimony, By-Election Risks Ahead
The Pound to Euro exchange rate (GBP/EUR) is hovering near two-month lows around 1.1450 as markets brace for a potentially volatile week driven by Bank of England commentary and a high-profile by-election.
With rate-cut expectations building ahead of March and political uncertainty centred on the Gorton and Denton vote, Sterling faces twin domestic risks that could trigger a decisive break lower – or prompt short covering if policymakers push back against dovish pricing.
GBP/EUR Forecasts: Set for Substantial Move
The Pound to Euro (GBP/EUR) exchange rate has held above 2-month lows just below 1.1430, but unable to make significant headway, trading close to 1.1450.
There is the risk of choppy trading this week. According to OCBC; “With the Greater Manchester by-election on 26 February, GBP volatility may remain elevated.”
ING, however, still sees scope for GBP/EUR to retreat to 1.1360.
The latest COT data, released by the CFTC, recorded a net increase in short, non-commercial Pound positions, maintaining the potential for short covering if the Pound can demonstrate resilience.
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There is the potential for economics and politics to influence the Pound this week with geo-political developments also watched closely.
As far as monetary policy is concerned, Bank of England officials will testify to the Treasury Select Committee on Tuesday. Governor Bailey and chief economist Pill will appear along with external members Taylor and Greene. The position of Pill be important given his resistance to rate cuts.
ING focussed on Bailey and Greene commenting; “Any suggestion that they could move into the rate-cutting camp for the 19 March decision could firm up the pricing of the March cut to 25bp from 20bp currently.”
The Gorton and Denton by-election will be held on Thursday. The opinion poll evidence is mixed, especially given the small sample sizes, but there are expectations of a three-way battle between Labour, Reform and the Greens.
ING added; “A heavy defeat for the ruling Labour Party could re-ignite speculation over the Labour leadership and again weigh on sterling.”
According to OCBC, positive economic factors are being offset by political concerns; “the muted GBP reaction to last week’s stronger data suggests investors may be waiting for political uncertainty around the 26 February by-election to clear before taking more decisive currency positions.”
It added; “We continue to see scope for EURGBP to retrace lower once political risks subside.” (GBP/EUR gains)
The German IFO business confidence index improved to 88.6 for February from 87.6 the previous month and slightly above consensus forecasts of 88.4.
There were limited net gains for the current assessment and expectations components. According to the IFO; “Companies were more satisfied with their current business situation. Expectations also developed positively. The German economy is showing first signs of recovery.”
If confidence in the German economy improves, the Pound will find it more difficult to make headway.
There is, however, now additional uncertainty surrounding trade policy with President Trump stating that a global 15% tariff will be imposed to offset the Supreme Court ruling to block IEEPA tariffs.
There will be implications for both the Euro area and the UK with elevated uncertainty. According to ING; “A strong Ifo index reading in February illustrates what a decent cyclical upswing could look like – if it wasn’t for the latest tariff woes.”
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TAGS: Pound Euro Forecasts
