Euro forecast to register strong declines over the Pound the course of next 18 months

Despite recent price action that shows there is very little between these two currencies, analysts at Bank of America Merrill Lynch have today told clients they are forecasting GBP to outperform EUR as we progress through the remainder of 2013 and through the course of 2014.

Exchange rate forecasts from BofA show the euro pound exchange rate is likely to be at 0.83 (GBP-EUR at 1.20) at the end of December 2013. The rate declines to 0.81 (GBP-EUR 1.23) come June 2014 with further declines to 0.80 (GBP-EUR 1.25) by the end of 2014 being registered.

"We see the euro weakening further as the euro zone is in recession and the ECB has introduced forward guidance, while the US is recovering, despite fiscal tightening, and the Fed is expected to start QE tapering this year," says the exchange rate forecast note.

The British pound is meanwhile tipped to gain on the back of an improving British economy:

"The recent improvement in economic data has left GBP sidelined in Q2. The structural outlook for GBP remains weak, but significant GBP weakness is unlikely to occur until cyclical and structural factors align. In terms of monetary policy, investors will now focus on Mark Carney’s arrival at the BoE."

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