British Pound to euro exchange rate: GBP/EUR firmly rooted above 1.19 but GBP could be overvalued say Barclays

As of late, this publication has presented many bullish views on the outlook for the pound euro exchange rate with some analysts even predicting an exchange rate of 1.25 being achieved in a year's time.

The pro-GBP stance comes as the UK economy continues to stage a robust recovery in comparison to the meagre gains being seen across the Eurozone.

However, this bullish view is brought into question by the latest Quantitative Analysis conducted at Barclays.

Research suggests that the British pound (GBP) is in fact overvalued against the Euro, and thus contrarian investors would consider the GBP/EUR as a selling opportunity in anticipation of a corrective movement.

According to Barclays analyst Yuki Sakasia, the market is assigning a 26.2% probability that GBP/EUR will be above 1.22 in three months.

There is a 24% probability that it will be below 1.1628.

(Be aware that all quotes here are taken from the wholesale spot markets; your bank will affix a discretionary spread when delivering you FX. However, an independent FX provider will guarantee to undercut your bank's offer and deliver up to 5% more currency. Please learn more here.)

"EUR/GBP is trading below our fair value estimate, and the deviation remains elevated," says Sakasai.

However, before readers go and sell the pound sterling against the euro, it must be noted that Barclays say Quantitative Analysis must be considered within the context of other macro studies.

"At best, QA enables investors with an articulated macro view to time their investment decisions effectively," say Barclays.

 

Pound to euro today: Will the troublesome euro return?


Even after the surprise rate cut from the ECB, the euro has been in fairly decent position, and we are still seeing some evidence of some euro buyers not ready unwind positions just yet.

"The opportunity for the euro to take this further is present and some solid eurozone data releases may provide the single currency with that extra momentum to drive the GBP/EUR below 1.19," says Sasha Nugent at Caxton FX.

Elsewhere in the foreign exchange rate world, German ZEW Economic Sentiment will be a focal point and some upside surprise here will encourage some euro buying.

A bare calendar for the UK means sterling will be on the sidelines once again, and we have seen evidence of this so far this morning.

In the US some Fed members will speak this afternoon, and it is unlikely this will bolster the dollar during trading today.

 

The euro's day


The euro traded in familiar ranges overnight, well off of a recent six-week low against the U.S. dollar. The single currency has bounced off of its recent lows as a result of mounting expectations that the Fed will remain accommodative for the foreseeable future.

Its upside however has been capped by the view that the ECB could follow up this month’s surprise lending rate cut with another reduction in borrowing costs or with non-standard policy measures like negative borrowing costs, expanded liquidity operations for banks or even outright asset purchases by the central bank.

Overnight, Germany’s ZEW economic forecast, a closely watched gauge of investor sentiment, rose to a four-year high. The strong headline number however, was slightly dented by a drop in the “current conditions” subcomponent of the report.