Analysts Forecasting Further Gains for GBP/EUR; Barclays Pencil in 1.2, Nordea Bank 1.19

Monday morning sees the GBP to EUR exchange rate holding firm above the psychologically significant level of 1.17:

• The Pound to Euro exchange rate is 0.09 pct down on last night's closing level at 1.1738.
• The Euro to Pound exchange rate is therefore at 0.8519.

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British Pound Forecasted at 1.2 in Coming Months

The latest exchange rate forecast issued by the FX team at Barclays back the British Pound over the Euro.

Analyst Chris Walker is predicting 1.2 in coming months; in a weekly currency note to clients Walker says:

"The lack of a hard commitment to any actions based on forward guidance by the BoE is likely GBP supportive, especially against the EUR, as the ECB remains firmly on hold with “soft” forward guidance.

"While the ECB’s degree of commitment has not been tested yet, we continue to expect it to launch another VLTRO at a fixed rate later in the year to prevent passive tightening due to LTRO repayment.

"We believe the perceived difference in monetary policy stance between the BoE and ECB, especially on the forward guidance, will weigh on EUR/GBP and expect it to grind lower towards 0.83 in 12 months (Pound to Euro @ 1.2).

Pace of GBP Gains Predicted to Slow Down

The race from the low 1.14's to mid 1.17's was rapid, as the below graph shows:

However, from here the pace of appreciation in the value of the British Pound is likely to slow, as Walker says:

"The pace of decline will likely be more modest than in the past few weeks, given the less crowded GBP short positions and lower likelihood of large positive data surprises from the UK, as suggested by our own flow data and UK data surprise index.

"We expect EUR/GBP to trend lower due to relative monetary policy outlooks. Given the mixed message revealed in the recent MPC Minutes, the BoE is likely to face a challenge convincing the market on the forward guidance, while we expect the ECB to launch another VLTRO later this year to address the issue of passive tightening in liquidity conditions. We also expect the euro area flash manufacturing PMI to surprise to the downside this week, likely weighing on the EUR."

The Good Run Should Continue say Nordea Bank, 1.19 Forecast for GBP EUR

Aurelija Augulyte at Nordea BanK says that the GBP/EUR could be capped at current levels:

"Even me, who’s been positive on GBP for a while, got surprised by the positive UK data dump recently. And it’s still looking good ahead.

"The short interest rate spread has been steady for months, leaving the EUR/GBP in the air at current levels. Buy on rumour, sell on fact (Carney)? One concern I have is the UK macro surprises at historic peaks.

"But if history is any guide, this can last for some weeks (macro forecasts adjusts slowly – economists are not traders), as there are some shorts left yet to squeeze.  If the EUR/GBP trend around 0.85-0.8520 (GBP/EUR @ 1.1760 - 1.1737) is crushed, next stop only close to May lows of 0.8400. (GBP/EUR @ 1.19)"