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British Pound to Euro Forecast: Buckle Up say Lloyds

Lloyds Bank exchange rates

Lloyds Bank hold a relatively stable forecast for the GBP/EUR exchange rate through the course of 2017, but the level of uncertainty surrounding the UK currency makes for some heavy volatility.

The high-street giant has released the latest edition of its International Financial Outlook and it appears that the Pound has reached its nadir against the single currency.

Indeed, the outlook for Pound Sterling against the Euro in 2017 is best summed up as a case of ‘more of the same’ if the latest financial predictions by Lloyds Bank are taken into account.

But while the bank's targets are relatively subdued, the prospect of turbulence during the flight must be accounted for by those with international payments due this year.

Central Banks Don’t Matter

Of interest to us is that Lloyds have told clients that developments at the European Central Bank and the Bank of England are unlikely to have any major bearing on direction in GBP/EUR.

“Following the European Central Bank’s decision to extend its quantitative easing programme in early December, GBP/EUR briefly spiked above 1.20. The rise, however, proved short-lived,” say Lloyds.

The currency pair has since faded back towards 1.15, as Brexit concerns have resurfaced.

“With interest rates in both regions expected to remain on hold this year, monetary policy developments are likely to have little bearing on the currency pair over the coming twelve months,” say Lloyds.

However analysts do flat the risk that the Bank of England could start to talk up the prospects of future policy tightening, particularly if, as Lloyds expect, the economy continues to hold up well and ‘core’ inflation trends higher.


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Political Currencies

The real driver of moves in the Pound to Euro exchange rate over the coming quarters will be developments in the political landscape argue Lloyds.

And this is where the turbulence will be encountered.

The imminent Supreme Court ruling, the triggering of Article 50 and the negotiating stance of the UK government could all put downward pressure on GBP.

Meanwhile the Dutch, French and German elections are cited as presenting clear risks to the EUR.

Europe is facing a very crowded election calendar in 2017 with scheduled Presidential elections for Netherlands in March, French Presidential elections in Apr-May, German Federal election in August-October.

Potentially in Italy, an election could be called as early as in February-March and all eyes will be on the performance of the anti-EU Five Star movement.

There are also other political risk events such as Italy Constitution court decision on electoral laws in January.

These events could create noise but of course unknown and therefore exchange rate forecasters make their projections using what information they have on hand.

“Our central expectation is for GBP/EUR to appreciate towards its recent range highs, reaching 1.21 by Dec-17. However, given the prevailing risks, there is scope for significant bouts of volatility in the interim,” say Lloyds.

GBP to EUR forecast Lloyds

Concerning the near-term outlook, the Supreme Court’s ruling on Article 50 and an upcoming keynote Brexit speech by the PM present two clear flashpoints for the Pound say analysts.

Donald Trump’s inauguration on 20 January could meanwhile increase Dollar volatility.

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