Better Rates to Buy Euros With Sterling Lie Ahead According to Latest GBP / EUR Exchange Rate Forecasts

Lloyds Bank Commercial have confirmed they have upgraded their forecasts for the GBP to EUR conversion suggesting that those with pending international payments could soon face notably altered exchange rates.

• GBP/EUR seen at 1.2658 at time of writing; tight consolidative trade continues near-term
• Bank of England / European Central Bank unlikely to play a part in near-term trade
• Forecasts suggest advances in conversion likely

The pound and euro appear to be caught in a period of consolidation as the pound's April recovery stalls in May.

The euro has taken back ground from the pound over the past week but it would appear the shared currency's momentum is now stalling.

The tight consolidative action we are now witnessing suggests a major break-out, lower or higher, is possible.

The upward-trending line in the below graphic suggests the GBP could advance further but we note the barrier ahead in the form of the 100 day moving average:

Fundamental Picture Favours Advance Towards 1.30s

Suggesting that the big next move in sterling-euro could be to the topside are analysts at Lloyds Bank whose commercial banking unit have suggested the GBP will rise notably over coming months. 

“Following President Obama’s comments, GBP has benefited from a drop in implied volatility from its early April highs. Our fair value estimate suggests that GBP/EUR should move back above 1.30 in the medium term,” say Lloyds in the latest publication of their International Financial Outlook.

GBP/EUR hit a 22-month low just above 1.23 in early April, but has subsequently recovered to around 1.27 – the middle of the range that has been in place since mid-February.

Another key factor for sterling-euro has been the rally in the pound to dollar exchange rate.

“GBP/USD has displayed greater sensitivity to recent USD weakness than EUR/USD. The paring back of US rate expectations saw GBP/USD outperform, driving GBP/EUR higher,” note analysts.

Latest Pound/Euro Exchange Rates

	Live: 1.1449▲ + 0.05% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.106 - 1.1106
**Independent Specialist	1.1289 - 1.1335 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Over the coming months, monetary policy is unlikely to be a key driver of this pair, with both
BoE and ECB expected to keep interest rates unchanged.

This call therefore draws questions of how important the Bank's May Inflation Report will really be to the trade of sterling.

“Instead the near-term outlook is likely to be dominated by heightened domestic and global uncertainty – particularly around the outcome of the EU referendum,” argue Lloyds.

Analysts confirm they are forecasting the Bank of England to raise interest rates towards the end of 2017.

The European Central Bank will meanwhile keep policy unchanged it is assumed.

The GBP/EUR exchange rate is forecast at 1.29 by mid-year, suggesting the current recovery has the legs to last into the referendum.

A rise to 1.35 is predicted by September and 1.36 by year-end. The pound is predicted to ease back in early 2017 with 1.34 being forecast and 1.29 being seen in early 2018.

US Dollar Downgrades

Lloyds Bank Commercial have advised clients they have lowered their forecasts on the US dollar complex.

The downgrades are predicated on the assumption the next US Federal Reserve interest rate will now be in September and not June.

“This reflects ongoing caution among policymakers and recent mixed signals from the US economy. Our US policy rate forecasts, nevertheless, still contrast with market expectations, with the next hike not fully priced in until next year,” say Lloyds in the latest publication of their International Financial Outlook.

Expectation of a US policy rate rise in September underpins a forecast for 10yr yields to rise above 2% by the year end, which we expect to be sustained into next year.

This should also help to pull UK 10yr gilt yields up to 1.7%.

The Bank of England MPC will meanwhile be following the US Fed in raising interest rates with a tentative target pencilled in for late 2017.

All this translates into near-term US dollar forecasts being lowered, but the year-end end target for EUR/USD is unchanged at 1.12.

“We see more upside potential for sterling and have revised up our year-end forecast of GBP/USD to 1.52 from 1.47 and GBP/EUR to 1.36 from 1.31,” say Lloyds.

Analysts confirm they still see a weaker yen, though year-end USD/JPY is revised down slightly to 116.