GBP/EUR Exchange Rate (GBP/EUR) at 18 Month Best: Are More Gains Forecast??

However, the rate of the gains recorded has certainly slowed with the euro enjoying some strong rebounds as traders book profit on recent moves.

For reference, on Tuesday morning, the pound to euro exchange rate is unchanged on last night's close at 1.2516.
The euro to pound exchange rate is therefore at 0.7991.

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The outlook for the euro pound exchange rate

What does the outlook hold for the euro to pound sterling? According to analysts at Bank of America Merrill Lynch Global Research, the pound should continue to enjoy positive trading conditions:

"We expect divergence of monetary policies to continue weakening EUR/GBP, as the BoE becomes more hawkish, while the ECB is considering unconventional policies."

Adding a technical dimension to the euro's outlook against the sterling is Luc Luyet, Senior Market Analyst at Swissquote Research:

"EUR/GBP remains weak despite the recent successful test of the support at 0.7961. Hourly resistances can be found at 0.8033 (intraday low, see also the 38.2% retracement) and 0.8065 (12/06/2014 high).

"In the longer term, the break of the key support area between 0.8082 and 0.8065 (05/06/2014 low) opens the way for a full retracement of the rise that started at 0.7755 (23/07/2012 low).

"A break of the resistance at 0.8184 (14/05/2014 high) is needed to suggest some exhaustion in the long-term selling pressures."

What will drive the GBP next week?

The Financial Stability Report will be closely watched on the 29th of June.

Sterling bulls will be hoping measures are outlined to deal with surging UK house prices, in addition markets will be looking for confirmation that the Bank is moving closer to raising rates.

If so, sterling could head yet higher against the euro. However, we would suggest that gains going forward will be more gradual as markets have largely now priced in an early interest rate rise.

The week ahead for the euro

Next week delivers a busy Eurozone economic calendar and will be an important test for the euro, "because investors will be looking to the data to provide confirmation on the need for additional easing," says Kathy Lien at BK Asset Management.

On the calendar is Tier 1 economic reports including Eurozone flash PMIs for the month of June, the German IFO report, retail sales, consumer prices and Eurozone confidence.  

Economists are not looking for any major changes in economic activity but after the plunge in investor confidence (ZEW survey), the risk is to the downside for these reports.

"Back to back disappointments could cause EUR/USD to test the lower bound of its recent range and its support at 1.35.  If the EUR/USD breaks through its February low of 1.3475, then it could be clear sailing down to 1.33," says Lien.