Pound to Euro Rate Outlook: "High for longer BoE could help GBP vs EUR" say BofA

October 15, 2023 - Written by James Fuller

STORY LINK Pound to Euro Rate Outlook: "High for longer BoE could help GBP vs EUR" say BofA

GBP/EUR Exchange Rate: Watching energy prices closely

Bank of America maintains a mildly bullish stance on the Pound over the medium term; "We remain of the view the BoE won't help sterling much near term, but a 'high for longer' BoE could help sterling versus euro later - we see EUR/GBP at 85 pence through our forecast horizon. (1.1765 for the Pound to Euro (GBP/EUR) exchange rate.)

ING, however, forecasts a slide to 1.1110 on a 12-month view.

Here are the latest institutional currency forecasts from Bank of America, ING, Capital Economics, MUFG, SEB and the GBP/EUR news for the week.

GBP/EUR was generally held in a 1.1500-1.1600 range during the week and settled close to the middle of this range on Friday.

Bank of England rhetoric was a significant element during the week.

BoE MPC member Dhingra continued to warn over the impact of higher interest rates. According to Dhingra; "The economy's already flatlined. And we think only about 20% or 25% of the impact of the interest rate hikes have been fed through to the economy.”

She added; "So I think that there's also this worry that that might mean that we're going to have to pay a higher cost than we should be paying."


After the 5-4 vote for no change in September, BoE Governor Bailey warned that the bank would face further difficult decisions in the months ahead.

According to Bailey; "Our last meeting was such a tight one. And as my colleague (BoE Chief Economist) Huw Pill said this week, they're going to go on being tight ones.”

Bailey added; "The last mile really does lean heavily on restrictive policy." Bailey said, adding the economic outlook appeared "very subdued".

Bailey also commented that the economic outlook appeared very subdued. He also warned that the growth potential in the economy was weak which capacity constraints quickly emerging which would require a relative restrictive monetary policy.

The August GDP increase was held to 0.2% after a revised 0.6% contraction for July.

There were monthly declines for industrial production and construction activity.

Investment banks remain generally downbeat over the outlook.


Capital Economics deputy chief economist Ruth Gregory still expects that the UK economy will dip into recession. According to Gregory; “Some of the strength of GDP in August was due to temporary factors and the timelier survey measures of activity point to a drop in real GDP in September. So we are sticking to our below-consensus forecast that the economy will shrink by 0.2% q/q in both Q3 and Q4.”

MUFG also voiced concerns over the UK outlook; “The monthly GDP report for August is unlikely on its own to trigger a further significant adjustment to their current forecast for weak growth, but risks are currently skewed to an even weaker Q3 GDP print.”

The bank added; “Weak growth alongside building evidence of slowing inflation in the UK supports our view that the BoE is unlikely to raise rates further this year with the policy rate peaking at 5.25%.”

ING also expects considers that UK rates have peaked and expects a Pound adjustment; “Expect EUR/GBP to bump up a little higher this year as the last vestiges of the BoE tightening cycle is priced out. And our call for 100bp of BoE easing in 24 (not priced now) could see 0.90. (1.1110 for GBP/EUR).

Geo-political considerations will remain important in the short term.

Following the attacks on Israel by Hamas, Israel is planning a ground offensive into Gaza.

Markets remain wary over the risk of a widening conflict that could, for example, disrupt energy supplies.

Oil spiked on Friday with Brent jumping to 1-week highs while gold spiked over 2.5%.

Higher oil prices would tend to favour the Pound over the Euro with the Euro-Zone economy vulnerable. Weaker equities, however, would do no favours for the UK currency.

ING commented on the Euro-Zone implications; “Needless to say, any further escalation of the situation in Israel and the Middle-East, plus chances that terror could also reach Europe, would weigh on sentiment and growth.”

Minutes from September’s ECB meeting suggested that interest rates had peaked, although there were still hawkish elements within the council.

Jussi Hiljanen, head of rates strategy at lender SEB commented; "The minutes revealed that several members considered that the policy rate is likely to be at or close to its peak."

ING also warned that the ECB could decide to push ahead with further rate hikes, especially if higher oil prices triggered renewed upward pressure on inflation. It added; “as we are no longer in the pre-pandemic era, but in the era of stickier-than-expected inflation, the ECB could still be tempted to choose its own credibility over a potential recession in the eurozone.”

Developments in China will also be watched closely given the importance for the Euro-Zone economy. The Euro will tend to strengthen if there is increased optimism over the Chinese outlook.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Euro Forecasts