Barcalys Stays Bullish on Pound Sterling against the Euro

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Barclays analysts maintain their optimistic outlook on the British pound (GBP) against other major currencies, particularly the euro (EUR).

In line with their positive outlook, Barclays confirms it maintains "long GBP exposure versus the EUR" following the recent Bank of England (BoE) meeting.

Following the BoE's Monetary Policy Committee (MPC) meeting last week, Barclays highlighted the central bank's "hawkish hold" as a significant driver for the pound's appeal:

1. The BoE's decision to keep interest rates unchanged while signalling a potential for further tightening in the future indicates their commitment to tackling inflation, even amidst signs of slowing price growth and more resilient economic activity. This stance contrasts with other major central banks that are nearing the end of their rate-hiking cycles, giving the pound a "carry advantage" – making it more attractive to investors seeking higher returns.
   
   

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2. Barclays anticipates that the BoE will proceed with a "slow and relatively shallow cutting cycle"
3. This suggests that any future interest rate cuts will be implemented gradually and in small increments, ensuring continued support for the pound

Improving UK-EU Relations

Beyond monetary policy, Barclays identifies the new UK government's commitment to fostering closer ties with the European Union as a source of "structural support" for the GBP

This renewed focus on collaboration is expected to boost investor confidence and contribute to a more stable and predictable economic environment, ultimately benefiting the British currency

Investment bank consensus forecasts update: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/EUR. Please request a copy here.

Short-Term Headwinds

While generally positive on the pound's prospects, Barclays acknowledges potential headwinds stemming from the upcoming UK Budget and the possibility of "perceived anti-growth measures"

However, the bank views these challenges as temporary and expects them to have a limited impact on the pound's overall trajectory

Forecast: Pound to Strengthen Against Euro

Reinforcing their bullish stance, Barclays predicts the pound will continue to outperform other G10 currencies.

Specifically, they forecast the pound to appreciate to 0.80 against the euro (EURGBP) in the coming weeks, which gives a pound to euro conversion of 1.19. However, a new forecast compilation guide released this week, shows Barclay's 'house view' is that 2025 could bring rates closer to 1.22.

This translates to a strengthening of the pound, making it more expensive to buy euros with sterling.

Trades of the Week

In line with their positive outlook, Barclays confirmed maintaining their "long GBP exposure versus the EUR" following the recent BoE meeting

This means they are betting on the pound's value to increase relative to the euro.