GBP/EUR Conversion Forecast to Slump to 1.30

A new foreign exchange forecast from a leading currency brokerage has suggested the pound could continue falling for the remainder of 2015.

The news comes as the GBP-EUR rate continues to struggle - the euro is in demand as German bond yields continue to rise - the movement of Eurozone bonds remain the main driver of the euro complex at the present time.

The currency pair is currently at 1.3551 with a potential move to 1.3500 now firmly on the cards.

Despite the current weakness it is worth noting that the majority of institutional forecasters we follow say they foresee the euro falling against both the dollar and euro in 2015 and 2016. Indeed we have just reported that Scotiabank are pricing in a rise for the GBPEUR to 1.50 in 2016.

There is a contrarian view to that offered by the bank analysts though – one that sees the euro getting stronger – and this has been made by foreign exchange brokerage HiFX who suggest the current pound to euro rate is at a good level for those people looking to buy euros.

Ironically, the contrarian view is looking like the correct one at this time - the question is how far could the declines extend to?

(Take into account that the quotes given here refer to the wholesale markets, your bank or payment provider will alter the exchange rate they offer you at discretion to derive profit. However, an independent FX provider will seek to get you closer to the market. In some cases this can result in up to 5% more currency being delivered. Learn more.)

It is hard to pin-point the exact reason for the euro's current strength as news flow remains limited, we can however conclude that in the short-term the euro remains favoured owing to the build up of pro-EUR momentum indicators.

Andy Scott, associate director of FX advisory services at foreign currency specialists HiFX tells us that over the past few weeks the Euro has traded not like a currency that is second only in terms of volume to the mighty U.S. Dollar but rather more like a highly volatile small nation currency such as the S.A. Rand.

“In fact last week, the Euro has been one of the biggest movers in the FX markets with the percentage change from low to high of 4.5% against the U.S. Dollar. And despite the fact that Greece has rejected the latest set of proposals from its creditors and is delaying IMF payments in a show of defiance, the euro (at least at the time of writing) is broadly higher,” says Scott.

So, is the increased volatility here to stay and is this weeks’ euro strength just a blip?

Scott tells us:

"We think that the two factors that seem to be influencing the higher levels of movement in the euro, namely Greece and swings in the price of euro zone sovereign bonds will be with us for a little bit longer, possibly into the summer. It’s hard to believe that with all the deadlines that have come and gone and were supposed to be make or break for Greece staying in the euro zone, they’re still in and we’re at yet another juncture.”

However this reinforces the desire of both sides to keep Greece in the euro and it’s hard to believe that either side will now seek a ‘Grexit’ suggests Scott.

HiFX’s view, contrary to many, is for the euro to strengthen further this year.

“We expect Greece to be financed for another few years, the European economies will continue to recover assisted by the ECB’s Q.E. and inflation will tick higher. Against the dollar, with the U.S. economy struggling to bounce back from the weak first quarter, as the strength of the currency drags on corporate profits from overseas and manufacturers struggle to compete globally; we expect to see EUR/USD head back above 1.20,” says Scott.

Against the pound, with U.K. inflation having turned negative and the economy growing at a slower pace than the Bank of England has forecast, rate hikes are unlikely until well into 2016 and the currency brokerage expects to see GBP/EUR head back towards 1.30.

At the start of June this forecast would have looked far-fetched but now it is looking a great deal more attractive.

Consolidation Seen by Lloyds

While HiFX are sterling bears, Lloyds Bank tell us they see the GBP-EUR entering a period of consolidation: 

"We believe EURGBP is in a wide consolidation range, but weaker UK data today could see the cross push up through .7400 towards more meaningful resistance in the .7475-.725 region, which incorporates the recent highs set in early May, pre-UK election. That area should cap the upside again with the QE programme and Greek worries eventually re-weighing on the EUR. .7260/55 is pivot support in this regard, with a decline back through there suggesting a move back to the range lows."