Pound Euro Rate Forecast: Buy GBP Below 1.15 say Rabobank

October 22, 2023 - Written by David Woodsmith

STORY LINK Pound Euro Rate Forecast: Buy GBP Below 1.15 say Rabobank

Currency analysts at Rabobank consider that Euro and Pound Sterling fundamentals are both vulnerable, but see a case for buying the Pound to Euro (GBP/EUR) exchange rate below 1.1500.

At the time of writing, the Pound Euro rate was trading at 1.14815.

Danske Bank, however, expects losses to 1.1365 on a 12-month view.

Here are the latest institutional forecasts from ING, MUFG, Rabobank , Danske Bank, Credit Agricole, along with the GBP/EUR news for the week.

UK data releases have been mixed this week. Wages data suggested slight moderation in pressures while the inflation data was slightly higher than expected.

Evidence of consumer spending, however, was weaker than expected.

UK retail sales volumes declined 0.9% for September after a 0.4% increase the previous month and compared with consensus forecasts of a 0.3% decline.

Sales in the latest 3-month period declined 0.8% compared with the previous quarter.

ONS chief economist Grant Fitzner commented; “Retail sales fell notably in September with retailers telling us that cost of living pressures are influencing consumers, particularly for sales of non-essential goods.”

UK consumer confidence registered a sharp decline for October with a 3-month low of -30 from -21 the previous month and compared with consensus forecasts of -20.

All metrics deteriorated on the month.

According to Joe Staton, Client Strategy Director at GfK; “The volatility we are seeing in consumer confidence is a sure sign of a depressed economic mood and there’s no immediate prospect of any improvement.”

MUFG commented; “The data today confirmed that retail sales dropped 0.8% in the three months to September from the previous three months. Before today’s data, the consensus for Q/Q Q3 real GDP growth was unchanged. A contraction is now a greater prospect.”

MUFG considers that the Pound will remain vulnerable with the threat of GBP/EUR losses. It noted; “Yesterday, EUR/GBP broke through its 200-day moving average and is further higher today suggesting further scope to the upside. The last time EUR/GBP broke to the upside through its 200-day moving average was in August 2022 ahead of a sharp move higher in response to the Liz Truss turmoil.”

The 2023 low for GBP/EUR is 1.1140 while the pair plummeted to below 1.08 in September 2022.

The headline UK inflation rate held at 6.7% for September and slightly above consensus forecasts of 6.6% while the core rate retreated to 6.1% from 6.2%, but slightly above expectations of 6.0%.

Rabobank notes that markets remain confident that interest rates will not be increased at the November policy meeting, but the narrative of tight monetary policy remained intact.

It added; “most of the reaction was concentrated at the longer end of the curve suggesting that the market is viewing the stickiness of UK inflation as a reason for BoE rates to remain higher for longer.”

A prolonged period of higher interest rates would potentially support the Pound, but this would be offset by further concerns over the economic outlook.

Credit Agricole considers that a lot of bad news is priced in; “We therefore think that, should the data meet or exceed the fairly downbeat market consensus expectations, this could help the GBP consolidate in the very near term.”

Overall confidence in the Euro-Zone outlook remains weak with strong expectations that the ECB will decide against further rate hikes.

According to ING; “We still expect a further worsening of the economic outlook until the ECB’s December meeting, strong enough not to continue hiking rates. However, with the latest surge in oil prices and consequently an upward revision of the inflation trajectory in the eurozone for 2024, we cannot entirely exclude that the ECB would still opt for yet another rate hike in December.”

Rabobank expects relatively narrow ranges will prevail; “In view of the headwinds facing the Eurozone economy we continue to see the outlook for GBP vs. the EUR as well balanced. Consequently we maintain our preference of selling rallies in EUR/GBP with the view that the 0.87 to 0.85 range will largely prevail in the coming months.”

The Conservative Party suffered another two very heavy by-election defeats this week with a further slump in support.

There will be strong pressure for the government to relax fiscal policy ahead of the General Election.

On a shorter-term view, the Autumn Statement on November 22nd will be important for market sentiment.

According to Danske Bank; “the wiggle room for the government is limited and additionally the coming year offers a range of challenges.”

It adds; “On balance, we argue that the outlook is more challenging for the UK given both the political backdrop and the ghost of the “mini”-budget. We thus see this as another argument to stay negative on GBP.”

It summarises; “The UK government would have to start making significant reductions to the deficit and bigger reductions than what might take place in the euro area before we would start to turn less negative on GBP and we have a difficult time seeing how that could happen next year with elections coming up.”

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TAGS: Pound Euro Forecasts