GBP/EUR Forecast: Are You Hoping for Higher GBP-EUR Rates? 1.19 is 2014 Average sayUniCredit

By Gary Howes

In their latest update to their 2014 - 2015 pound euro exchange rate forecasts UniCredit Bank warn the pair will be stuck around the 1.19 level suggesting that those hoping for higher rates should take advantage of anything above this level.

Are you hoping for a better pound euro exchange rate? If so you then it would be advisable to heed the latest forecasts issued by Italy's UniCredit Bank.

To be sure, the consensus amongst the leading exchange rate forecasters is for the euro to decline against the British pound with some warning that a rate of 1.25 is achievable.

The median forecast for end-2014 is currently set at 1.25, and it is for this reason that UniCredit stand out; they are undoubtedly euro bulls.

Why is the euro predicted to remain strong?

The recovery of the Eurozone is predicted to continue apace from here, and there is nothing the ECB can do to stop the resultant strengthening of the shared currency.

UniCredit say:

"It has long been our belief that the appreciation of the euro is, and will continue to be, driven by greatly improved confidence in the euro area. At the same time, we think there is little the ECB can do to prevent EUR from strengthening: another cut in the refi rate and/or a funding-for-lending scheme are unlikely to have lasting impacts on the currency. Only full-blown QE (purchases of government bonds) could deliver a blow to the EUR, but this is highly unlikely, especially in an environment of improving growth."

The GBP-EUR is forecast at 1.19 until September 2015. Consider that the average forecast amongst leading banks for the GBP-EUR by year-end 2014 is 1.25.

As shown above, for the team at UniCredit Bank the ECB has to bring out 'the big guns' to halt the euro's ascent.

It will then be noted with interest that over the past couple of days we have seen declines in the value of the euro with a number of high-profile ECB member's hinting that some extraordinary action could be taken to secure the Eurozone's recovery.

ECB members Visco and Liikanen said the central bank is open to the idea of negative deposit rates.   

"While this option is not new, the cohesive message from European policymakers suggests they are taking this possibility more seriously," says Kathy Lien at BK Asset Management.

Bundesbank President Jens Weidmann also spoke hypothetically about 'other tools' at the central bank's disposal.

For those looking to buy currency this all creates a difficult scenario in which markets will become highly sensitive to the utterances of the team at the ECB.

Indeed, the Bank could simply embark on a campaign of talking down the euro. However, this will likely not fool markets for long. Essentially the ECB will have to start backing their talk with action, or markets will simply start ignoring them.

But for action to be taken the Eurozone's economic indicators would surely have to deteriorate notably, and the trend suggests this is not the case.

Hence, we are inclined to sit up and take notice of the UniCredit forecasts.