GBP/EUR Rate at 1.22 in First Half of 2022 Show Commerzbank Forecasts

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The Pound to Euro exchange rate is expected to appreciate in coming months according to foreign exchange analysts at Commerzbank, the Frankfurt based lender and global financial services provider.

The bank's suite of forecasts for 2022 show the Pound can rise against the Euro through the first three quarters of 2022 before peaking and easing back again.

Against the Dollar however the profile is relatively flat as the Federal Reserve and Bank of England keep their currencies in check against one another through a series of interest rate rises.

Indeed, it is the policy settings of the major central banks that will ultimately guide the Euro, Dollar and Pound Sterling in 2022.

"The Bank of England is likely to start raising its interest rates gradually soon. The pound should benefit from this," says You-Na Park-Heger, FX and EM Analyst at Commerzbank.

• Reference rates at publication:
  GBP to EUR: 1.1760 \ GBP to USD: 1.3279
• High street bank rates (indicative): 1.1530 \ 1.3000
• Payment specialist rates (indicative: 1.1700 \ 1.3213
• Find out more about specialist rates, here
• Set up an exchange rate alert, here
• Book your ideal rate, here

Foreign exchange markets had been banking on a rate rise at the Bank of England on December 16 for much of late November, however expectations have since been torpedoed by the emergence of the Omicron variant and the UK government's reflexive response of imposing tighter restrictions.

The implementation of Plan B measures by the government on December 08 means UK economic activity will likely moderate into year-end, offering enough uncertainty for the majority of the Bank's Monetary Policy Committee to wait until February before considering a hike.

This push back in expectations has been met by a decline in Sterling: GBP/EUR has retreated from 1.19 in late November and is back at 1.1675.

But Commerzbank says there is still enough of a chasm between monetary policy expectations between the European Central Bank and the Bank of England to yield upside in GBP/EUR over coming weeks and months.

"Even though this is likely to disappoint the market somewhat, we still see appreciation potential for the pound against the EUR. This is because the BoE is clearly ahead of the ECB in terms of a more restrictive monetary policy," says Park-Heger.

The European Central Bank is also due to offer an update on monetary policy next week and a pushback on rate hike expectations is also expected.

"The market is likely to be equally disappointed in terms of the ECB's first rate hike, as we expect a rate hike at a later date," says Park-Heger.

"All in all, we expect the GBP to appreciate against the EUR next year," she adds.

The March 2022 point forecast for the Euro to Pound exchange rate is set at 0.83, for June it is at 0.82, for September it is at 0.81 and December 2022 it is at 0.82.

This gives a Pound to Euro equivalent of 1.2050, 1.22, 1.24 and 1.22.

For the entire period the Pound to Dollar exchange rate point forecast is set at 1.33.

"Against the USD, the pound should trend sideways, because the US Fed will also start raising interest rates next year," says Park-Heger.