Euro to Pound Exchange Rate Forecast to Remain Under Pressure

A selection of forecasts for the euro to pound exchange rate conversion (EUR-GBP) as we move into the middle of May.

Insight on mid-week GBP strength: Sterling has received a fresh boost on the back of better-than-expected wage data from the ONS on Wednesday.

The cloud of electoral uncertainty has lifted allowing sterling the chance to further strengthen against the euro which in turn suffered a bout of weakness at the end of last week. A recovery in German Bund yields this May was seen as a key driver behind EUR strength, however the gains ended on Thursday ensuring the currency declined in response.

The shared currency also lost ground against the US dollar at the close of the week after stronger-than-expected US employment data supported an all-round recovery in the world’s largest currency. We continue to see the interplay between the dollar and euro as being important for direction in the sterling v euro exchange rate and look for a strengthening in US data to re-boot the USD rally.

The strong moves made in all GBP crosses on Friday, following the UK General Election results, have shaken up our previously-held technical forecast picture and afforded sterling a more positive tone.

Currency markets face a busy week in terms of both UK and Eurozone data releases and we ask leading industry analysts what they consider to be the key levels that will influence direction in the EUR-GBP rate over the short and near-term timeframes.

At the time of publication the euro to pound sterling exchange rate (EURGBP) is trading at 0.7245, turning the conversion rate around the pound to euro (GBPEUR) is at 1.3807.

* All currency quotes mentioned here refer to the wholesale market. Your bank will affix a discretionary spread when transferring money internationally. However, an independent provider will seek to undercut your bank's offer, thereby delivering up to 5% more currency in some instances. Please learn more on how this is achieved here.

Latest Forecasts for Sterling Euro

Westpac:

"EUR/GBP has slid sharply after the decisive victory by the Conservatives but it has only unwound the election uncertainty premium built in just ahead of the election. Moreover, with Grexit risk on the rise GBP may benefit from some late safe haven flow. Bottom line EUR/GBP risks have flipped and wouldn't be surprised to see the pair test 0.70 in the next week or two."

Lloyds Bank Research:

“The inflation report Wednesday expected to give us more guidance. After the UK election saw a conservative majority government form we are expecting to see GBP out perform in the short-term.

“EUR/GBP is expected to push to new lows, with technical support at 0.7160/50 ahead of the previous 0.7014 lows set in early March. “

Charles Stanley:

“Pre-election jitters drove the UK currency down to a three-month low of 1.34 last week but Friday’s result provoked a rebound that looks like it might have further to run in the short-term. Despite its recent choppy price action the chart is suggesting that a run back above 1.40 has become a realistic near-term expectation and that we have probably seen the bottom for now. “

Commerzbank:

“EUR/GBP last week saw complete rejection from the top of a 6 week up channel located at .7492 today. This marks the end phase of an ‘a-b-c correction higher that we have seen since the middle of March.

“The market is expected to drop towards the bottom of the channel at 0.7164.This will act as the break down point to the .7118 April low and then the .7015 March low. Rallies will find initial resistance at .7326 and are expected to remain capped now by the .7496 top of the channel.”

What to Watch

Fundamentally the next big event lying in the path of the UK currency is the Bank of England’s Quarterly Inflation Report due on Wednesday.

These are always massive events for the GBP as it is the best chance for currency market traders and economists to get a detailed insight into how the decision making body at the Bank of England is thinking.

Should we get an indication that the Bank is keen on raising UK interest rates in 2015 then look for further British pound outperformance.

Should a 2016 rate rise be communicated look for underperformance.

The week starts with the Bank of England (BoE)’s interest rate decision today- this will almost certainly remain unchanged at 0.5% as inflation is minimal and wage growth under 2%.

This will be followed by Tuesday’s industrial production and manufacturing data for March, both of which are expected to show gains, albeit at a marginally slower pace than in the previous month.

On Wednesday there will also be data releases covering the UK labour market and wages and we see this as potentially being the single most important data release on the monthly calendar.