British Pound To Euro Exchange Rate Forecast: Sterling Rates To Test Best This Week?

Foreign exchange markets saw the British pound to euro rate decline further from best conversion levels after hints of additional BoE 2016 easing. We examine the latest euro-related fx forecasts targeting the sterling and the US dollar in the short, medium and long-term GBP/EUR forex outlooks

• The Pound to Euro exchange rate today: +0.03pct higher at 1.16448, best of last 30 days 1.1938.
• The Pound to Dollar exchange rate today: -0.01pct at 1.29829, best in 30 days 1.3424.
• The Euro to Dollar exchange rate today: -0.04% at 1.11491.
• The Euro to Pound exchange rate today: -0.03pct at 0.85876.
• Euro's appeal on foreign exchange markets softens - see today's news update below.

Despite a lack of action from the BoE the mood towards the Pound has remained muted, allowing the Euro to make fresh gains despite banking sector worries.

Even though the Bank of England (BoE) opted to leave interest rates on hold this week investors were not impressed by the indication that policymakers remain willing to cut rates again, if necessary.

The dovishness of this outlook weighed heavily on Pound Sterling (GBP) at the end of the week, particularly as uncertainty is likely to put downside pressure on the domestic economy over coming months.

While confidence in the Eurozone has remained relatively muted, with investors spooked by the news that Deutsche Bank faces a $14 billion fine from the US Department of Justice, this was not enough to keep the Pound Sterling to Euro (GBP/EUR) exchange rate from slumping.

Latest Pound / Euro Exchange Rates

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British Pound (GBP) Could Rise Versus the Euro (EUR) Early This Week

The GBP/EUR could pick up on Monday if the Rightmove House Prices data for September proves sufficiently encouraging, with signs of strength in the housing market likely to ease investors’ minds somewhat

‘Most importantly, the MPC reiterated that a majority of members expected to lower Bank Rate if the economic outlook was judged to remain ‘broadly consistent’ with the August Inflation Report. This final cut would then be delivered in either November or December 2016. Our forecast is for a final 15bp cut in Bank Rate to 0.1% on November 3 2016.’

Also of interest will be August’s public sector borrowing report, which is expected to show a deficit of -8.4 billion Pounds, something which would not seem to bode well for the outlook of the UK economy.

Stronger Eurozone PMIs to Dent GBP/EUR Exchange Rate

Eurozone Consumer Confidence is forecast to have weakened further in September to dip from -8.5 to 9.2, a possible sign that sentiment within the currency union has continued to deteriorate.

Worries over Greece and the European banking sector could also weigh on the single currency over coming days, particularly if Deutsche Bank does not manage to negotiate a lower settlement with the Department of Justice as some investors hope.

Friday’s raft of provisional September PMIs should also provoke volatility for the GBP/EUR exchange rate, with the pairing expected to trend lower in response to any indications that the domestic economy remains robust.

Fed Interest Rate Decision to Prompt Euro (EUR) Exchange Rates Volatility

The Euro could benefit strongly in the run-up to the latest policy meeting of the Federal Open Market Committee (FOMC), with the US Dollar likely to weaken due to the limited odds of any monetary tightening occurring at this juncture.

If policymakers indicate that a 2016 interest rate hike remains a distinct possibility, though, the GBP/EUR exchange rate could rally strongly thanks to the Euro’s negative correlation with the ‘Greenback’.

Less appetite to return to the Fed’s tightening cycle would give investors fresh reason to pile into the Euro, on the other hand, as this would ease pressure on the European Central Bank (ECB) to consider further monetary loosening.

Key GBP and EUR Related Economic / Forex Events This Week

This week's euro-focused events include the Current Account source, German Buba Monthly Report source, German PPI source, Long Term Refinancing Option, ECB Economic Bulletin, ECB President Draghi Speaks, Consumer Confidence, French / German / EZ Flash Manufacturing & Services PMIs source.

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This week's sterling-focused events include the 30-y Bond Auction source, Public Sector Net Borrowing source, BOE Quarterly Bulletin, FPC Statement, CBI Industrial Order Expectations, MPC Member Cunliffe Speaks source.

Sterling Predicted to Weaken in the Near-Term Outlook

John Hardy of SaxoBank, in a note to clients, forecasts a period of weakness for the pound sterling in the near to medium term outlook:

"The Bank of England this week signaled an intent to cut at the November meeting and there is nothing from the recent noises from the EU to suggest that Brexit negotiations will be an easy process."

"In that light GBP faces a long period of uncertainty that could crimp the large capital flows needed to offset the UK’s large twin deficit and keep sterling under pressure again versus the US dollar and possibly against the euro as well."

"In general we also suspect that sterling will weaken on a continuation of the recent market volatility as it did over the past week."

The Euro's Exchange Rate Appeal Softens Today

The appeal of the Euro weakened in response to the Eurozone current account surplus narrowing from 29.5 billion to 21.0 billion in July.

This did not offer particular encouragement in the outlook of the domestic economy, exacerbating the Euro downtrend provoked by a general increase in market risk appetite.

The Pound to Euro exchange rate fluctuated around the level of 1.1700 throughout Monday’s session, occasionally reaching as high as 1.1715 but generally trending well below Friday’s best levels.

Sterling was able to recover from its worst levels but has remained pressured.

While Euro sentiment was also mixed, the currency was supported throughout the day by a weak US Dollar, as USD investors sold off the ‘Greenback’ in favour of its European rival.

In a note to clients, Lloyds Bank are looking for a top in the euro to pound exchange rate in the near-term outlook:

"We still view the move from 0.8330 as corrective, with prices moving into important resistance in the 0.8540-0.8640 region.

"If we are right about a lower high developing under 0.8720 for a move towards 0.8000, then this is the ideal region for that top to develop. Intra-day support in this regard lies around 0.8495."

"Long term, in conjunction with the GBPUSD view, we believe the move above the July highs is the last within the rally phase from the 0.70-0.69 lows."

"We are seeing further signs that a top is in place for a move back to 0.80 and then the 0.75 region in the coming months."