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Pound to Euro Exchange Rate Outlook: GBP Still too Cheap say ANZ

Trading the GBP to EUR exchange rate

  • Pound to Euro Rate Today (4-12-16): 1.1932
  • Euro to Pound Sterling Rate Today: 0.8379

Here is why analysts at ANZ and ABN Amro believe Pound Sterling will deliver further strength against the Euro.

Foreign exchange strategists at ANZ Research are bullish on the British Pound’s prospects against the Euro for the near-term.

The call comes following a particularly good week for Sterling in which it struck its best level against the shared currency since September 6.

In a client briefing ANZ’s Daniel Been expects political uncertainty in the UK to remain elevated with the government appeal to the Supreme Court on Brexit opening on 5 December.

But, the ruling won’t be revealed until early next year and the timing could allow Sterling a period of Brexit-related stability in which to recover lost ground.

“The GBP remains vulnerable to political events,” says Been. “However, with solid growth; the BoE firmly on hold; and with no major policy events in the near-future - the Pound looks cheap at current levels.”  

“The Pound looks cheap at current levels.” - Daniel Been, ANZ Research.

Indeed, the economy has performed surprisingly well - with growth at a solid above-trend 0.5% quarterly pace in Q3.

The month of December has gotten off to a decent start on the economic growth front with PMI surveys of the construction and manufacturing sectors revealing robust growth as we close out what has been an unprecedented year for the UK politically.

Meanwhile, in the Eurozone policy uncertainty looks set to rise – especially if the ‘no’ camp should prevail at the Italian referendum.

“In addition to that, ECB President Draghi is largely expected to announce an extension of QE at the next ECB meeting (on 8 December) which could add to downward momentum for the euro,” says Been.

“GBP at the moment looks like good value and, if investors’ sentiment towards the euro area deteriorates, we think EURGBP could weaken from current levels,” says Been.

Latest Pound / US Dollar Exchange Rates

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Sterling Forecast to Gain against Euro in 2017 by ABN Amro

Taking a longer-term view, we hear GBP/EUR will gradually strengthen over the course of the next year by analysts at ABN Amro.

"We expect sterling to weaken versus the US Dollar in 2017 but to strengthen versus the Euro. This is because eurozone political uncertainty will weigh on the euro across the board. Moreover, as the focus in financial markets has shifted from Brexit to Trump and now to the eurozone political uncertainty, sterling is likely to be relatively resilient," says ABN Amro's Georgette Boele in Amsterdam.

Despite the weak outlook for the UK economy, Boele and her team expect the Bank of England to stay on hold because of higher inflationary pressures.

Sterling tends to depreciate when the Bank cuts interest rate and increases its quantitative easing programme.

Fiscal policy will probably be designed in such way that inflationary pressures do not build.

ABN Amro believe the government would like to avoid a situation in which the Bank of England would need to start hiking interest rates.

Modest fiscal stimulus in 2017 - the measures announced by the Bank in August are still feeding through - combined with an absence of rate hikes by the Bank of England is likely to result in the economy muddling through. 

"All in all, we think that most of the negative investor sentiment has abated and this will probably result in investors closing their short positions if sterling weakens somewhat. Therefore, we judge that a new sharp depreciation of Sterling is unlikely," says Boele.

The Dutch Bank forecast the GBP/EUR exchange rate to trade at 1.17 in the first quarter 2017, 1.20 by the second quarter before fading back towards 1.26 by the end of the year.

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