UK's Pound to Euro Forecast: GBP/EUR Could Still Attempt 1.300 by 2015

Pro-GBP news that the UK's central bank has started leaning towards an interest rate hike was swiftly forgotten on the back of dire retail sales figures.

Inded, we are nervous of further weakness in the sterling euro this month. However, longer-term forecasts suggest the UK unit could yet still find its former strength.

A break below 1.240 would likely spell a deeper decline, so watch to see whether this level is tested and broken in coming days.

• The pound to euro exchange rate (GBP/EUR) is seen trading 0.02 pct higher on a day-on-day basis at 1.2489.

If you are holding out for better exchange rates then don't hesistate, ensure your FX provider has the relevant buy order in place for when your rate is achieved. Likewise, if there is a threshold you are not willing to cross to the downside ensure stop-loss orders are in place. Please learn more here.

UK Retail Sales Disappoint, Keep Currency Under Pressure

Weaker than expected U.K. consumer spending offered more evidence of how the British economy has come off a boil.

Retail sales rose by a mere 0.1 percent (m/m) in July, just a quarter of forecasts of a 0.4 percent (m/m) gain. Meanwhile, the 2.6 percent rise in the annual number was the slowest since November.

"Sterling has rapidly fallen out of favor this summer as more and more hop off the early rate hike bandwagon," notes Joe Manimbo at Western Union.

Bank of England and Interest Rate Rise Speculation is Key

Driving the GBP at the present time remains the issue of interest rate rises - more specifically the timing of said interest rate rises. Wednesday saw fresh buying interest on news that members of the Bank's MPC are leaning towards raising rates.

However markets remain unsure as to the exact timing and have in fact started to push back on their expectations for the first rise; as they do so the sterling is likely to remain vulnerable.

Only by bringing forward their expectations of a rate rise, to say late 2014 will we likely see the GBP to EUR test new 2014 highs.

UK Inflation Falls, Hits GBP Hard

The sterling euro rate suffered fresh selling pressure on news that UK inflation has fallen by a greater degree than expected.

"The pound plunged to new four-month lows south of $1.67 as a slower rise in inflation depicted a U.K. rate hike further from sight. Consumer prices in Britain rose 1.6 percent annually in July, below forecasts of 1.8 percent and just above May’s 1.5 percent print which was the tamest since October 2009," says Joe Manimbo at Western Union.

Note that the falls against the dollar were a lot more severe than witnessed against the euro.

HiFX: Forecasting a Stronger GBP/EUR by Year End

Should we consign the pound euro rate to lower levels or will a comeback shape up?

Analysts at HiFX tell us that the GBP will have to begin its rally against the EUR sooner or later and that they are forecasting higher levels:

"With the economy still growing at a pace even faster than the U.S. there is some scope for it to bounce back, particularly against the euro where the ECB are facing pressure to weaken monetary policy further rather than tighten it.

"We continue to expect the GBP/EUR rate to move towards 1.30 this year but would expect it to struggle against the U.S. dollar where the policy dynamics are becoming more aligned.”

But, Beware Further EUR Strength

The euro rate is once again struggling to find traction after a key pillar for the bloc, its current account surplus, shrank in stature in the latest period.

Joe Manimbo, Senior Market Analyst at Western Union tells us we should be wary of an bouts of strength which could well materialise:

"The bloc’s current account narrowed more than expected to €13.1 billion in June from an upwardly revised €19.8 billion in May.

"The euro owes some of its resilience to the bloc’s healthy current account position but the smaller surplus underlines broad based economic weakness in the region.

"A word of caution to euro buyers because as poor as sentiment remains toward the euro, it could quickly find itself on the receiving end of a short-covering rally given that bets against the euro have become the most stretched in years.

"Potential triggers for a euro bounce are seen in Friday speeches from Fed Chair Yellen and European Central Bank (ECB) President Draghi who are both slated to speak at the Fed’s Jackson Hole summit of central bankers."