Pound to Euro Week Ahead Forecast: Latest GBP/EUR Projections 2024

March 24, 2024 - Written by David Woodsmith

STORY LINK Pound to Euro Week Ahead Forecast: Latest GBP/EUR Projections 2024

Currency exchange forecasters at Danske Bank expect the Pound to Euro exchange rate (GBP/EUR) will weaken to 1.1365 over the next few months.

BNPP, however, expects that GBP/EUR will strengthen to 1.2050 at the end of 2024.

GBP/EUR dipped sharply to 2-month lows at 1.1625 before a tentative recovery to 1.1650.

The Bank of England (BoE) held interest rates at 5.25% following the latest policy meeting, in line with expectations.

There was a shift in voting with Haskel and Mann dropping calls for higher interest rates. Dhingra again calling for interest rates to be cut and there was an 8-1 vote for holding rates steady.

Bank Governor Bailey stated that the conditions were not yet right for a cut in interest rates, but the situation is moving in the right direction.

In subsequent comments, Bailey tended to play up the potential for interest rate cuts this year.

Headline UK inflation also declined to 3.4% for February from 4.0% previously and below expectations of 3.5%.

There are also expectations that the headline rate will decline to below 2% during the second quarter, increasing pressure for the BoE to cut rates.

Markets are more confident that interest rates will be cut in June with the bank signalling a move at the May meeting.

According to MUFG; “The pound could therefore suffer further over the short-term if the markets conviction on a June rate cut grows further and with that the potential extent of rate cuts in total delivered this year. The EU-UK 2-year rate spread is moving in favour of higher EUR/GBP.”

In this context, MUFG has closed its long GBP/EUR trade recommendation.

Danske Bank noted; “We do not believe that the BoE will feel comfortable enough to opt for a rate cut at the May meeting but following dovish remarks from Bailey later in the day, we definitely think it is a possibility.”

Danske added; “Following the release of the statement, EUR/GBP moved higher on both the dovish vote split and guidance from the statement. Overall, we see relative rates as a negative for GBP and see current levels as attractive levels to sell GBP.”

BNPP expects a relatively smooth political ride for the Pound. According to the bank; “Polls continue to strongly indicate a Labour party victory at the next general election. History suggests scope for polls to narrow in favour of the incumbent ahead of an election, but this has yet to happen. As a result, we see little reason for expectations of a Labour victory to change and this lack of uncertainty should be positive for the GBP.”

BNPP also looked at the UK fundamentals and commented; “In addition, even though the UK current account is still in deficit, this has not put pressure on the GBP. In fact, we see ongoing foreign investor demand for UK debt securities as something that mitigates the impact of the current account deficit, and see little reason why this situation should not continue given lower political uncertainty and resilient UK growth.”

The latest Euro-Zone data recorded a net improvement in services, but a faster rate of contraction in manufacturing.

Markets overall remain convinced that there will be a rate cut by June with the possibility of an earlier move.

The German IFO business confidence index posted a significant advance to a 9-month high of 87.8 for March from a revised 85.7 the previous month and well above consensus forecasts of 85.9.

There were net gains for the current conditions and expectations components.

According to the IFO, “In particular, companies’ expectations turned much less pessimistic. Assessments of the current business situation also improved, The German economy glimpses light on the horizon.

The PMI business confidence data was less confident in the German manufacturing outlook with a faster rate of contraction, although there was a net improvement in services.

ING is still cautious over the outlook; “together with yesterday’s PMI reading, which showed a further weakening in the manufacturing sector but improvements in the services sector, the message is clear: the German economy is bottoming out – but a strong recovery is not in sight yet.”

The bank added; “All in all, after a rather devastating year for the German economy in 2023, every single positive data point from here on out should be celebrated. Today’s Ifo index is one of these data points, even if much more is needed to bring the economy from bottoming out to recovery.”

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TAGS: Pound Euro Forecasts