Pound to Euro "Fantasy Currency Trader" - Forecasting GBP EUR to Trend Higher

November 4, 2014 - Written by John Cameron

STORY LINK Pound to Euro "Fantasy Currency Trader" - Forecasting GBP EUR to Trend Higher

On 25th Sept 2014, our Fantasy Currency Trader column advised that the British Pound to euro conversion was a BUY and suggested that readers should use a block of GBP10,000 to purchase euros from a then-current conversion rate of 1.2783 EUR.

How has the GBP/EUR trade played-out up to this point?

• The Pound to Euro exchange rate today is converting -0.09 per cent lower at 1.27765 GBP/EUR.
• The US Dollar to Euro exchange rate converts -0.21 per cent lower at 1 USD is 0.79884 EUR.

By the middle stages of yesterday’s North American equities session, the Pound Euro rate was changing hands at 1.2804, meaning that the original GBP10,000 which our Fantasy Currency Trader staked was now worth GBP10,016.43. Hardly earth-shattering, but a small profit nonetheless.

UK Inflation Data Hurts Sterling Euro Rate

However, since we last looked at how we were getting on, GBP to EUR has suffered a pronounced slump.

Official government statistics, published three weeks ago today, revealed that the rate of British inflation had dropped dramatically to an annualised 1.2%.

The September figure represented a marked dip from August’s counterpart showing of 1.5%, leading economists to begin talking-up the possibility that the UK economy might be hurtling towards a damaging bout of deflation.

British Deflation Threatens The Pound

The fact that the publication was followed shortly afterwards by the news that the price of a barrel of crude oil has dropped to its lowest level for some four years made the prospect of falling prices in the UK all the more real, causing investors to push back their predictions regarding the timing of the next Bank of England interest rate hike and increasing the potential for British deflation.

Previously, the ‘D’ word had only seriously been flouted with regard to the euroland, so the release caused a pronounced move against the Pound.

The fallout saw the Pound Euro exchange rate tumble to 1.2428 on 15th October – this represented the pair’s lowest level since the second week of September.

GBP EUR Threatens 6-Week High

However, the intervening period has brought a sustained recovery for the Pound against the euro and the pair now sits within a cent of its 6-year high.

Investors now appear to have accepted that they will have to wait until the latter part of next year for the BoE to act on rates.

However, the European Central Bank is expected to make its next policy easing move in the very short term. With most economists pricing-in a very high likelihood that the ECB will announce an all-out version of Quantitative Easing, involving the bulk-buying of regional sovereign debt, this side of Christmas, the forecast for the single currency remains negative and the outlook for the GBP EUR exchange rate positive.

Pound to Euro Exchange Rate Forecast Higher

Consecutive closes for GBP EUR above its 6-year high of 1.2894 – a move which would send out a strong positive signal for the pair – now appear a real possibility, re-enforcing our original forecast that the Pound euro exchange rate will move higher from its then-current level of 1.2783.

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TAGS: Currency Predictions Euro Forecasts Euro Pound Forecasts Fantasy Cu Forecasts