Sterling to Euro Forecasts: EUR at Top of its range say Lloyds Bank Research

Sterling to Euro exchange rates will be well protected to downside moves suggest analysts.

How far can the rally in the Pound Sterling to Euro exchange rate last?

According to analysts at RBS and Barclays there is scope for further gains in this exchange rate in coming months with 1.2 being possible.

EUR now at top end of ranges

Today we hear from Adrian Schmidt at Lloyds Bank Research who says the Euro is likely at extended valuations:

"There has been a huge amount of good UK economic news in recent months, but in spite of this GBP has been relatively stable against most majors over the summer.  

"To some extent this can be explained by the “forward guidance” provided by new BoE governor Carney and the MPC. Even though the market remains priced for a much more hawkish outcome than the BoE is promoting, the guidance has been effective in preventing yield spreads at the short end of the curve moving much in favour of GBP.

"This still looks likely to prevent any major independent sterling strength in the short run, though solid data limits GBP downside.

"Better data from the Eurozone has maintained the positive EUR tone for much of the summer, but better data is still not good data, and there remains much more obvious justification for the ECB’s bias to ease than there does for the dovish stances being taken at other major central banks.

"The front end of the EUR curve looks a little too steep given the depressed state of the Eurozone economy, and the ECB may seek to bring yields down with some more policy easing.

"The German election is more uncertain than is generally assumed, and Italian politics is also a potential negative. All this suggests the EUR is at the top end of ranges."