Pound Euro Exchange Rate Forecast to move Towards 1.35 in 2015

The UK's pound remains under sustained selling pressure against its Eurozone counterpart.

Selling interest has been intense; earlier in the week we were looking for 2014 highs, now we could be on target for inter-month lows.

The pushing back of expectations on the timing of the UK's first post-crisis interest rate hike is the culprit for the latest decline with markets pricing in a rate rise in November 2015.

Nevertheless, those holding out for a stronger GBP should take heart in the observation that the broader uptrend in the pound to euro exchange rate remains intact.

Some analysts are calling for levels as high as 1.35 and 1.40 in 2015 - more on this below.

At the time of writing the GBP/EUR is at 1.2583, down from a high of 1.2816 recorded on Wednesday. The euro to pound exchange rate is at 0.7948.

* Keep in mind the above conversion is an indicative interbank spot quote. Your bank will levy a spread on the rate at discretion. To ensure you get as close to this market rate as possible get in touch with an independent specialist.

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Hold Your Nerve

Some bullish forecasters reckon that, despite the current nerves, the longer-term outlook remains positive for the GBP/EUR exchange rate.

Andy Scott, associate director at HiFX looks through the current weakness inspired by the Bank of England's relaxed approach to low interest rates.

He says markets are overlooking the relative outperformance of the UK economy when compared to its peers:

“As today’s figures show, UK unemployment is continuing to fall – albeit at a slower rate. We’re now seeing average earnings heading back up after hitting a record low in August.

"Rising earnings are a good thing as far as the economy is concerned, easing downwards pressure on households’ disposable income, leading to increases in consumer spending.

"However, earnings still have to rise further before they match inflation, and that’s a core focus for the Bank of England. Today’s quarterly inflation report revealed that the Bank expects the dip in inflation to continue, maintaining their positive GDP growth outlook – however, with only a 0.1% drop in its forecast for next year to 2.9%.

"The upside of potential higher interest rates for the pound has been diminished by the declining trend in inflation. However, the economy still looks in good shape, especially compared to the eurozone. We maintain a favourable bias for GBP/EUR towards 1.3500 into next year and expect GBP/USD to recovery marginally back over the 1.6000 level.”

Could the Pound to Euro Even Reach 1.40 Longer Term?

Also seeing any pound euro exchange rate weakness as being corrective is Lucy Lillicrap at brokerage Afex. She is forecasting 1.40 GBP/EUR being reached in 2015:

"Directly or otherwise further gains are readable and on this basis any emergent GBP weakness should continue to prove unsustainable. Although not anticipated directly once 1.3000 gives way 1.4000 will then be reachable long term."

Euro Exchange Rates at Risk of Growth Data

The outlook for the euro is currently dominated by growth data due for release at the close of the week. (RESULTS PRINTED BELOW!)

Joe Manimbo at Western Union tells us:

"The euro firmed on Thursday but its near-term fate was squarely in the hands of area growth data on Friday.

"Markets expect euro bears to pounce on any disappointing news on third quarter growth which would stir recession fears in the bloc. On the other hand, in line or above forecasts of slight growth would help temper recession risks and give the euro a shot at building on today’s tepid advance.

"Adding to the uncertainty, meanwhile, will be critical news on the U.S. consumer Friday. With the euro hovering near multi-year lows, the current market remains favorable for EUR buyers to take cover and reduce more of their exposure with forward contracts."

Eurozone Data Disappoints

French GDP was better than expected at 0.3 pct on a quarterly comparison for the third quarter of 2014.

German GDP grew by an aneamic 0.1 pct in the third quarter of 2014, having contracted in the previous quarter.

That’s broadly in line with expectations.

Europe is experiencing a “Waterworld recovery”, says Alberto Gallo of RBS, and time is running out.

Speaking to Bloomberg, Gallo says it is a mistake to rely on liquidity from central banks to stimulate growth, rather than making structural economic reforms.

He warns that this can’t go on much longer, as inflation - and inflation expectations - are falling.

We are getting close to Japanification here, there’s not a lot of time left and this will bode poorly for the outlook of the euro exchange rate.