Euro to Pound Sterling: Morgan Stanley Forecasts More Gains

Not even an inactive Bank of England will be able to boost Pound Sterling say Morgan Stanley who foresee further losses aganst the Euro over coming weeks.

• Euro to Pound Sterling exchange rate today: 0.9051
• Pound to Euro exchange rate today: 1.1050

Analysts at Morgan Stanley agree that more losses for Sterling lie ahead and have updated clients with their latest projections for EUR/GBP.

Analysts say the UK currency is at risk of falling even lower as the prospect of an hard-Brexit still remains a possibility despite the decision by the Prime Minister to allow Parliament a degree of oversight over the process.

In short, the damage to the UK's reputation as a stable investment destination has already been done and it will take notable political assurances to mend that reputation.

“The risk is now that investment into the UK slows down in the next two quarters, reducing inflows into the UK further and thus weakening GBP," say Morgan Stanley.

The government’s opening stance in negotiations with Brussels have a strong chance of creating extreme uncertainty which will weigh on Sterling, even if the final deal is softer and the opening hard-line stance is merely a negotiating tactic to ‘start high’.

Latest Pound/Euro Exchange Rates

	Live: 1.1455▲ + 0.1% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1066 - 1.1111
**Independent Specialist	1.1295 - 1.134 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

A recent fall in expectations for the Bank of England (BoE) to cut interest rates again would normally have been expected to lead to a strengthening of the Pound.

The falling expectations for another rate cut comes as inflationary pressures in the economy start to build and UK data retains a positive tempo.

However, Morgan Stanley point out the old correlation between Gilt yields, which reflect BOE rate expectations, and Sterling has broken down.

This explains why what would have historically been a GBP-positive stance from the BoE will be irrelevant this time around.

“Gilt yields rising should the BoE not suggest a QE extension or cut rates should not provide GBP with a major boost, in our view,” say Morgan Stanley.

A move from monetary to increased fiscal spending is now more likely – but how will this impact on the pound?

“Generally fiscal support should boost growth and thus a currency, but we think that the upside currency impact may be limited as this is a time of unprecedented uncertainty and business investment is likely to slow.
“Past GBP strength has been supported by FDI and portfolio investment,” say Morgan Stanley.

The investment bank’s research team is meanwhile bullish about the Euro which they see as benefiting from strong repatriation flows due to weak Eurozone banks selling their foreign assets and repatriating the money back into euros.

“Overall we think it will be broader market flow dynamics keeping the EUR supported. In particular, weak banks in the Eurozone may have to repatriate foreign assets, supporting the currency,” comment the Morgan Stanley team.

“We remain buyers of EURGBP towards 0.92,” say Morgan Stanley.

This equates to 1.0870 in GBP/EUR terms.

Some would say these projections are actually quite bullish when compared to some noted analysts who are forecasting parity to be achieved in EUR/GBP over coming months, while others are more sanguine.