Euro Forecast: EUR/GBP and EUR/USD Exchange Rates to Decline Warn Lloyds, But Watch Out for Near-Term Strength

Indeed, one analyst points out that the euro's weakness may have run its course for now.

Nevertheless, the majority of forecasters tend to adopt a bearish stance when viewing the end of 2014, start of 2015. We look at both the near- and long-term prospects for the shared currency.

Euro rate today; quotes at the time of writing:

• The euro dollar exchange rate (EUR/USD) is 0.07 pct lower on a daily basis at 1.3354.
• The euro pound exchange rate (EUR/GBP) is 0.06 pct lower at 0.7995.
• The euro to Aus dollar rate (EUR/AUD) is 0.16 pct lower at 1.4311.

Please Note: All quotes here are taken from the wholesale markets. Your bank will affix a spread at their own discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more FX.

Has Recent Euro Weakness Ended?

Has euro weakness run its course for now?

"The euro Friday found itself about a 0.5 percent above recent nine-month lows against the greenback. This week’s European growth figures, while lousy, really weren’t as poor as some of the market’s more dire predictions," says Joe Manimbo at Western Union, commenting on the surprisingly strong end to the week displayed by the shared unit.

Further near-term strengthening may yet play out as market positioning is also helping to temper bearish sentiment since bets against the single currency are the most in two years.

"U.S. importers who could benefit from the current market, nearly the best since last fall, should consider covering at least some of their exposure given the euro’s recent ability to keep from plumbing new lows. A great way to preserve some of the greenback’s appreciation is through the use of Forward Contracts which ensure certainty over costs," says Manimbo.

While near-term relief rallies could continue we continue to keep an eye on the escalation of the Russia/Ukraine crisis which could be  a key downside risk for the euro in the short-term.

Longer-Term Forecasts: Euro to Pound and Euro Dollar Declines?

Despite the recent strength we cannot ignore the downbeat growth data from the bloc this week which highlighted the pressure on the European Central Bank to do more to keep its economy from unraveling further.

Lloyds Bank take a longer view of the performance of the EUR/USD and EUR/GBP:

"The euro came come under renewed selling pressure over the past month. EUR/USD tumbled through 1.34 for the first time since last November, while EUR/GBP slid below 0.79 for the first time in almost two years."

All this points to the underlying bearish sentiment facing the currency.

Longer-term, the impact of the Ukraine crisis will start filtering through to economic activity. Already we have seen a softening in recent German data which is particularly concerning.

Lloyds say they are forecasting a weaker euro pound and euro dollar going into the year-end:

"Euro area inflation has also continued to ease, with lower energy prices pushing CPI inflation down to 0.4% in July, its lowest since October 2009. Against this backdrop, the ECB left policy unchanged in August but highlighted the need for stimulus to underpin a still gradual and fragile recovery.

"The take-up of its Targeted Longer-Term Refinancing Operations in the coming months will be a key test. The deterioration in the euro area utlook has coincided with an improvement in the US. This divergence is expected to weigh on EUR/USD and EUR/GBP in the year ahead."