British GBP/EUR Today: GBP-EUR Exchange Rate Forecast to Edge Higher as Eurozone Economy Grows at 'Glacial' Pace

At the time of writing the pound to euro exchange rate (GBP/EUR) is seen trading 0.16 pct higher on a day-to-day comparison reflecting a relief rally in the EUR complex, the conversion rate is at 1.2808.

"We don’t see much upside for the euro against sterling as long as market speculation on more QE from the ECB continues. We reinstalled a cautious sell-on-upticks bias for sterling after the Scottish “No” and maintain that strategy," says a pro-GBP forecast from analysts at KBC Markets today.

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Pound Sterling Forecast to Outperform

From an FX point of view, the current divergence being witnessed in economic performance, inflation and central bank policy intensions, set the scene for significant currency adjustments and movements.  

"In the UK, the focus is still on the referendum and constitutional fall out, but as long as the economy stays on its current trajectory, the BoE will be normalizing rates early next year. GBP along with the USD will be the outperformers," says Jonathan Webb at Jefferies.

Piet Lammens at KBC Markets gives the following forecast for the euro pound rate:

"Further down the road, the focus for sterling trading should return to the economic fundamentals and to the guidance from the BoE on policy normalization. After the recent rebound of sterling and the soft comments from the BoE minutes, investors are pondering the chances for further sterling gains. This wait-and-see behavior might still take some time as there are few really important UK eco data on the agenda this week."

Euro Boosted by Surprising German Data

The euro is advancing at the time of writing courtesy of some rare good news out of the Eurozone economy.

Boris Schlossberg at BK Asset Management tells us that the moves higher are more likely a symptom of short-covering on the forex markets:

"Meanwhile in Europe the EZ PMI data was mixed with German services component showing surprising strength as it rose to 55.4 versus 54.6 eyed, but the manufacturing report missed forecasts printing uncomfortably close to the 50 boom/bust line at 50.3 versus 51.3 expected. The sharper than expected decline in manufacturing suggests that Europe's largest economy is going to see anemic growth in H2 of this year.

"Whether this forces the ECB to begin its QE program remains to be seen, but demand in Europe has clearly flatlined and the central bank will need to act soon in order to stimulate growth.

"The euro shrugged off the news and popped above the 2890 level as short covering kicked in. The reaction is likely a symptom of the pair's oversold condition and investors were likely relieved that the news from the region was not worse.

"Still while the overall indices show that EZ region continues to expand albeit at a glacial pace, it is very vulnerable into tipping into a recession if demand does not pick up over next few months."