Pound euro exchange rate forecast: GBP/EUR could head lower towards 1.2 this week

By Will Peters

The pound euro exchange rate is under pressure on Monday the 3rd of February with the latest exchange rate forecasts suggesting support could lie at 1.2.

The pound to euro exchange rate (GBP/EUR) is trading a massive 0.84 pct in the red at 11:06 on Monday morning. The exchange rate, at the time of your viewing:

The forecast is for the rate to perhaps head down as far as 1.2 this week.

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Forecasting a lower pound to euro exchange rate

The big headache for the British pound at present was the release of a below-expectations PMI release from the Manufacturing sector.

The manufacturing PMI eased from 57.3 to 56.7 in January; already heavy, GBPUSD cleared support at 1.6400 for the first time since January 17th and stepped in the daily cloud cover (1.6216/1.6388). We expect deeper downside correction pre-BoE.

EUR/GBP rebounded from 0.82011 (GBP/EUR at 1.2193) on divergence between Euro-Zone / UK PMI numbers.

"Trend and momentum indicators flattened. We keep our bearish view as long as the 21-dma resistance (0.82650) holds; with mid-term target set at 0.80820/50 (Jan 2013 lows)," says a note on the euro / pound exchange rate forecast issued by Swissquote Research.

Bill McNamara at Charles Stanley has the following forecast for the pound:

"The pound added just over 1% relative to the euro in January and, as the chart shows, this has brought it into contact with downtrend resistance, at 1.22 or so. In fact, it is worth noting that sterling has recently been as high as 1.223 so it is entirely possible that its upside momentum will lift it through that trend-line before too long. In the meantime, the 50-day MA should provide some support at around 1.20."

Central bank decisions due this week

The remainder of the week is dominated by two more PMI readings - Construction and Services. Expectations will now be to the downside, so any upside surprises could rescue the British pound.

There is also decisions out of the ECB and BoE to watch out for with the possibility of a surprise at the ECB being a possibility:

"We expect status quo in the monetary policy this month and are curious to hear what Draghi has to say about persistent weakness in CPI figures. Released on Friday, the January CPI estimate y/y eased from 0.8% to 0.7%, meaning that two months after the last cut in main refi rate, the consumer prices remain under pressure in the Euro-area. And the disinflationary pressures give support to EUR-crosses, somewhat similar to Japanese situation in 1990’s, although the comparison is sharply rejected by Mr. Draghi," say Swissquote.