Best Pound Euro Rate Arrives in June Says Danske Bank Forecast
- Written by: Gary Howes
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The outlook for the euro against the pound sterling has improved slightly according to a new forecast note from a leading investment bank.
"We have revised our 1 to 6 months EUR/GBP forecast slightly higher as the support to the GBP stemming from relative rates might kick in a bit later than previously estimated." - Danske Bank.
Danske Bank have told clients that the outlook for the euro to pound exchange rate has improved and they have raised their forecast for EUR-GBP as a result.
However, the profile for the euro to pound pair (EUR-GBP) still remains skewed to the downside until at least mid-2015 suggesting that there are better rates for those buying euros ahead.
Targeting EUR-GBP to Hit 0.69
Danske have postponed their call for the first Bank of England rate hike three months from August 15 to November 15.
Consequently they have also revised their 1 to 6 months EUR/GBP forecast slightly higher.
“However, in our view, the BoE is still priced much too dovishly (first hike set for Q3 16) and we expect the combination of additional EUR weakness caused by the ECB’s ‘hot potato effect’ coupled with a re-pricing of BoE will keep EUR/GBP under pressure for now and we target EUR/GBP at 0.69 in 6M (0.68),” says Morten Helt, Senior Analyst at Danske in a note to clients.
Turning the equation around to GBP-EUR, 0.69 = 1.4493, 0.68 = 1.4706.
The MPC has become more dovish in 2015 and especially the recent appreciation of the sterling has raised concerns.
Indeed a stronger sterling affects the UK economy both with respect to economic growth and inflation more than a stronger dollar affects the US economy since the UK economy is more open.
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Danske join other currency market commentators by pointing to the upcoming election in the UK on 7 May as a source of GBP weakness and excessive volatility.
“Even after the election, and we have revised our 1 and 3 months targets slightly higher to 0.72 and 0.70, respectively, (from 0.70),” says Helt.
Converting pounds into euros 0.72 equates to 1.3889, 0.70 equates to 1.4286.
Danske Bank Projections
Euro Pound Rate Today
The UK currency Enters the latter half of the month on the front-foot against the euro after it was shown that Eurozone inflation remains at dangerously low levels.
Dennis de Jong, managing director at UFX.com, comments on the latest readings from the European Union Consumer Price Index:
“With the German industrial machine grinding to a halt, territories across the Eurozone are struggling for real growth. Even the dousing of low oil prices hasn’t kick-started Europe’s largest economy in earnest, causing smaller countries to feel the knock-on effects.
“Yet, there are signs that many European economies are starting to turn the corner. Whether that is down to QE or a combination of lower oil prices and a weak euro boosting exports is a matter of opinion. Either way, ECB president Mario Draghi may be reeling his QE programme back in much earlier than first thought.”
Meanwhile, the GBP side of the equation was boosted as it was shown the UK's all-important jobs market was continuing to improve at a solid pace.
Nawaz Ali, UK Market Analyst, Western Union Business Solutions, comments on market reaction to the UK jobs report:
“We are seeing a positive market reaction towards Sterling after the solid UK jobs report, with GBP/USD touching the $1.5000 mark less than a week after hitting 2010 lows of $1.4563.
“With the number of people in work in Britain jumping by its biggest amount in almost a year, this will give the Bank of England more confidence about raising interest rates in the future.
“Although today’s separate UK wage growth data was a little disappointing, as the UK economy nears maximum employment wage growth may start to show bigger gains in coming months.
“In addition, the good economic news provides traders with a little more certainty about the UK economy before uncertain UK elections.”
Elsewhere, the focus remains on Greece into this weekend’s IMF Spring Meetings in Washington, where sources have not only all but ruled out reaching a deal to release the remaining bailout bunds by next week’s Eurogroup meeting, but even by the one after that on 11 May, making it now quite uncertain whether Greece is going to be able to make the €750mn payment due to the IMF the next day.
For now we continue to see sterling remain well supported against the euro and broadly in line with the aforementioned Danske Bank base scenario.
