GBP EUR Long Term Forecast: Pound Sterling To Trade Lower vs Euro (EUR)

Modified: Tuesday, 20 May 2014 10:26 BST - Written by Ben Hughes

STORY LINK GBP EUR Long Term Forecast: Pound Sterling To Trade Lower vs Euro (EUR)

The Pound Sterling (currency:GBP) once again failed to push forward against the euro (currency:EUR) during yesterday’s session. The Pound euro exchange rate climbed to a fresh 16-month high during last week’s session, but as per Sterling’s previous breaks higher against the single currency, the pair once again fell back to trade to trade down to as low as 1.2257 GBP/EUR yesterday. The pair struck its multi-month high of 1.2305 as long ago as last Wednesday.

The message from futures markets is that the Bank of England will embark on a fresh interest rate hiking cycle toward the back end of next year and this could be the variable which has stopped the Pound Sterling pushing convincingly higher against the euro since the middle part of last week. Comments from BoE Chief Mark Carney during the intervening period would appear to confirm that British interest rates will be held at their current ultra-low level for some considerable time to come, adding to the downside pressure on the Pound.

However, not all analysts are sure that the UK central bank will be introducing quantitative tightening as soon as the back half of 2015. Alan Higgins, the Chief Investment Officer for UK at British Bank Coutts, is one such dissenting voice; he stated yesterday that, ‘we can easily see the Bank Rate staying at its rock bottom level for another four years.’ If Higgins’ forecast proves accurate, then the Pound Sterling may be in for a rough ride in the medium to long term and the Pound euro exchange rate will be eyeing parity rather than the succession of fresh highs which some economists are currently foreseeing.

Looking at the other side of the coin, the euro suffered another blow during after hours in the European equities session yesterday when leading eurozone policymaker Ewald Nowotny weighed into the ongoing policy argument in mainland Europe, insisting that the European Central Bank must actively consider negative deposit rates. Such comments are likely to weigh heavily on the single currency, potentially pushing GBP EUR to new near-term highs.

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