Euro to Pound Exchange Rate Forecast back Down to 0.90

• Euro to Pound Sterling exchange rate today: 0.8454
• Pound to Euro exchange rate today: 1.1830

EUR/GBP is forecast to move higher from here but strength will be capped below the all-time highs achieved back in 2009.

Pound Sterling will fade against the Euro over coming months with expectations growing that the EUR/GBP will appreciate back towards early-November highs.

This is the view of analysts at Danske Bank who have released their latest briefing on the outlook for the foreign exchange market to their corporate clients.

Of note though is Danske have actually upped their forecasts for Pound Sterling in the wake of recent economic resilience and assumed a greater Brexit premium.

As such, the all-time highs in EUR/GBP seen back in 2009 will be avoided.

Why is the Pound's outlook a little better than it was a few months ago then?

Danske argue the prospect of a “renewed special relationship,” between the UK and the US since Trump’s ascendancy is one reason to be a little more optimistic on the UK currency.

Upbeat data and the surprisingly good Q3 GDP data, which showed a 0.5% rise and beat estimates, are another reason.

Inflation – that harbinger of higher interest rates is also set to continue rising as the depreciated Pound takes its toll.

“CPI printed at 1.1% y/y in October and we expect it to increase sharply in coming months – due primarily to the weakening of the GBP. We expect CPI inflation to remain elevated for a period and to peak just below 3% in coming years,” says Danske Bank's chief analyst Allan Von Mehren.

Another notable positive for the Pound is the much-changed outlook for monetary policy.

From being convinced the Bank of England would have to stimulate the economy more – thus putting pressure on the Pound – the consensus now appears to be that they will probably keep shtum.

Latest Pound/Euro Exchange Rates

	Live: 1.1459▲ + 0.14% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1069 - 1.1115
**Independent Specialist	1.1299 - 1.1344 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Nevertheless, Brexit uncertainty will probably trump all other considerations since Sterling is expected to weaken to the Euro.

And the Euro itself will probably weaken short-term due to increased political risk in the Eurozone prompted by the rise of the far-right and their anti-EU policies.

Between December 4 and May 2017, we have the Italian referendum, the Austrian Presidency, the French Presidency and the Dutch General Election.

At least two out of the four above are likely to lead to wins for far-right anti-EU parties (Austria and the Netherlands).

There is also the possibility of Italy’s referendum leading to a snap general election, which could see a victory for the anti-EU Five Star party, but currently, there is only a 15% chance of this happening.

French Elections to Keep Euro Pinned Down

In France, the election of Francois Fillon in the primaries makes it less likely that far-right candidate Marine Le Pen will be voted into power, but even there a shock – as happened in the UK and US is possible too.

This risk is likely to weigh down on the Euro in the short-term argues Von Mehran.

“In France, the focus is on the presidential elections in April/May with the party leader of the Front National, Marine Le Pen, dominating the headlines.

“She has stated that she will call a referendum on France’s continuing membership of the EU if she wins the election.

“We believe the French presidential election poses the biggest downside risk in terms of rising risk premiums on euro assets and, by extension, euro weakening,” said Von Mehran.

Pound Could Benefit From Political Chaos on Continent

The Pound could be the unlikely beneficiary of political uncertainty on the continent because if more countries vote to leave the EU it may change the whole terms of negotiation leading to a more relaxed Union.

This could help the UK in reaching a compromise on a softer post-Brexit trade deal.

Marine Le Pen has said that if she is elected she will hold a referendum on membership of the EU which if it votes for France’s Exit from the EU will lead to a similar negotiating stance to that of the UK.

Le Pen has said she would ideally wish to remain in a trade pact with the rest of the EU but also place a limit on immigration, which is a similar stance to that of the current UK government.

Thus the pound could rally against the Euro in the event of heightened political risk emerging in the Union.

Forecasts for the Euro vs Pound

Danske forecast “0.86 in 1M, 0.88 in 3M, 0.90 in 6M and 0.90 in 12M.

From a Pound into Euro perspective this translates into 1.1628, 1.1364 and 1.11.

ING Release Similar Forecasts for 2017

We have just released our latest report on the outlook for the Pound and the Euro in 2017 - this time covering the views from ING. 

Interestinly, there are a lot of similarities to the final destinations expected in EUR/GBP as those seen by Danske which lends more weight to these targets.