British Pound Won't Par the Euro Say Bank of America in Latest Exchange Rate Analysis
- Written by: Gary Howes
Bank of America Merrill Lynch Global Research have told clients that GBP/EUR will be hard to push below 1.10.
- Pound to Euro exchange rate today: 1.1776
- Euro to Pound Sterling exchange rate today: 0.8493
August will be remembered as the month that some London airport bureaux de change were found to be offering less that one Euro for a Pound; this despite the spot inter-bank market rate trading around 1.17.
The eye-catching rates were course the result of currency sellers taking advantage of their position as a last-stop-shop for holiday makers, but the situation has not been helped by some institutional forecasters warning that the inter-bank rate was in fact headed to parity and beyond.
A good portion of the institutional research community continue to anticipate further declines in the GBP/EUR exchange rate over coming months with polling data from Bloomberg confirming there are analysts still convinced that the pair may end up at parity.
However, we have noted forecasts for parity remain on the more extreme side of the spectrum.
Indeed, much of the coverage we have conducted at PoundSterlingLive.com has shown a good portion of sober estimates that see the pair edging down a little further before stabilising, and even recovering through 2017.
In fact, by December consensus estimates believe the GBP/EUR exchange rate will be trading at 1.14 with the pair back up to 1.1750 by next August.
“While part of this represents a mark-to-market exercise following the significant post-Referendum depreciation, the market remains split on whether the bulk of the sell-off is behind us or whether the worst is yet to come,” says Kamal Sharma at Bank of America Merrill Lynch Global Research.
Sharma reports that many of his client interactions have increasingly focused on GBP/EUR against the backdrop of an increasing number of analysts calling for GBP/EUR to hit parity in 2017.
Latest Pound/Euro Exchange Rates
  | Live: 1.146▲ + 0.15%12 Month Best:1.2162 |
*Your Bank's Retail Rate
| 1.107 - 1.1116 |
**Independent Specialist | 1.13 - 1.1345 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
“While we continue to argue the case for further GBP weakness, our analysis suggests the misalignments that were exerting upward pressure on EUR/GBP earlier this year have largely corrected and in some cases suggest GBP is undervalued versus EUR,” says Sharma.
Indeed, Bank of America would go further and argue that EUR/GBP will struggle to
maintain a handle above 0.90.
From a GBP into EUR perspective this equates to 1.11.
“In our view, selling top-side options in EUR/GBP is not attractive with volatility depressed. However, we would see any move toward 0.90 as an opportunity for the corporate (GBP buying) community to increase longer-term forward hedges,” says Sharma.
Euro Shrugs off Inflation Data Mid-Week
Inflation in the Eurozone rose by only 0.2% mom and 0.8% yoy in August; disappointing analysts who had expected a 0.3% rise and 0.9% rise respectively.
Unemployment also remained unchanged in August defying the consensus of economists who had forecast it falling another basis point to 10.0%.
The results could make it marginally more likely that the ECB will opt to increase its already substantial package of stimulus measures at its September meeting.
When central banks raise stimulus it is generally seen as negative for the currency due to the increase in supply of money, as well the temporary downwards pressure put on rates.
The EUR/GBP exchange rate remained just below 1.1800 after the release, whilst the EUR/USD rate actually - counter-intuitively - rose five-hundredths of a cent following publication of the data.
Foreign Exchange advisors Foenix Partners’ senior sales trader, Alex Lydall, said the figures showed growth in the bloc was “stagnant.”
Although it was, “a little early to call for further action,” he argues Mario Draghi would be “taking a deep breath” to calm his nerves after the release and the worse than expected result would put the ECB’s policy outlook back on centre-stage after the recent hyper focus on the Fed.
German Unemployment Remains Unchanged
Also out from the euro-area was unemployment data from Germany in August, which came out at 6.1% in August, from 6.1% in July and the same expected.
The data shows no signs yet of damage from Brexit due to falling orders to the UK which is a key destination for German manufactured goods.
It indicates less of a short-term impact on Germany from Brexit than had been expected, and lowers the probability of the ECB pulling the trigger in September – a positive for the euro.
However, the single currency failed to react following the data as traders kept their ammunition for the more important inflation data released on shortly after.
