Euro to Pound Sterling Exchange Rate Forecast: EUR/GBP Predicted to Maintain the Upper-Hand for the Next Month
The Euro to Pound exchange rate is forecasted to continue to benefit from the UK economy's outperformance of that of the Eurozone by Lloyds Bank Research.
Above: Lloyds Bank research give their latest forecasts for the British Pound against the Euro in the coming month.
A look at the currency markets in the wake of today's MPC Minutes release shows:
The Euro to Pound Exchange Rate is 0.14 pct down on last night's close at 0.8442.
The Pound to Euro Exchange Rate is thus at 1.1845.
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Short-term outlook continues to favour sterling
Analysts at Lloyds Bank Research have today told clients that they are forecasting further weakness in the Euro to Pound exchange rate pairing over the course of the next month.
Lloyds say analysts should expect a range of 0.8150-0.8550 to be treaded with a bias lower.
Indeed, this forecast will rely on the observation that EUR/GBP has fallen sharply in recent weeks, helped by continuing strong UK data and the steady rise in UK yields.
This also chimes with the longer-term fundamental forecasts held at some big-name research houses, however we note that 1.2 could prove to be a temporary cap.
The view also appears to be in line with other similar shorter-term predictions which we reported on yesterday.
UK Economy outperforming the Eurozone
According to Lloyds, although much of this has been matched by the rise in EUR yields, so spreads have only moved modestly in favour of GBP, "it is clear that the UK economy is significantly outperforming the Eurozone for the first time for some years, and this alone is enough reason to prefer GBP as a “better EUR”."
Positioning also likely to benefit the GBP
Lloyds go on to say:
"Positioning also favours GBP, with the CME data now showing a significant EUR long position held by non-commercial accounts, while GBP positioning remains significantly short.
"While BoE governor Carney can be expected to continue to try to fight against the rising trend in UK yields, he has so far been relatively ineffective, and the strength of the data makes his job difficult.
"Draghi has similar problems, but the relative weakness of the Eurozone economy and the steepness of the front end of the EUR curve suggests there is more potential for the ECB to be successful in pulling EUR yields back down, even if they are unlikely to take any substantive measures like cutting rates or providing new LTROs as long as the data continues to improve."
Of course, the current evidence of strength in the UK recovery cannot be relied upon to continue, but while it does positioning "suggests that EUR/GBP can enjoy the majority of any decline in EUR/USD, with GBP/USD remaining well supported," say Lloyds.