Pound Euro Predictions See Conversion Rate Testing Best Levels of 2014 (Eventually)

Will the British pound to euro reach its best exchange rate of 2014 in coming weeks? If the current recovery seen in GBP/EUR continues to play out we could indeed be set for fresh highs.

The pound to euro exchange rate has found itself in an uptrend since July 2013 - the rising channel has been characterised by 'higher lows' - i.e the move higher contains lows and high points but each low point is higher than the previous low.

As we can see from the below this behaviour could well deliver fresh highs: (Note that the graph is updated regularly and therefore changes).

PS: All exchange rate quotes in this article are to be assumed as being taken from the wholesale currency markets. Your bank will subtract 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. Learn more.

What this tells us that if the September/October downturn just witnessed is to follow the same pattern as it has in recent months, then the next high could well deliver us the best pound euro exchange rate in years. That said, our latest analysis of the pair suggests the next opportunity for a crack higher will likely come in October.

Analyst Bill McNamara at Charles Stanley is one analyst who has GBP/EUR at 1.3000 in his headlights.

Euro Firms Up

While analysts and traders have taken a negative view of the euro in 2014 we note that it has actually been rather resillient to this week's mini Eurozone panic-attack.

"The euro firmed in generally narrow ranges overnight as relative calm came over global financial markets. Massive swings in global equity and bond markets this week saw the single currency rally from near a two-year low to three-week high, then back down toward the middle of recent ranges," says Omer Esiner at Commonwealth Foreign Exchange.

Mounting fears that the euro zone economy slipped into its third recession in Q3 as well as signs that persistent disinflation is becoming all-out deflation sent peripheral euro zone bonds tumbling.

Still unresolved issues from the bloc’s debt crisis, namely swollen government deficits, have been exacerbated by very anemic growth and falling prices.

"While the euro has stabilized well off of its recent lows, its outlook should remain very negative based on the view that the ECB will likely be forced into an all-out bond buying scheme similar to the Fed’s soon-to-be-completed quantitative easing program. The prospect of the ECB printing money to purchase euro zone government bonds remains a very negative scenario for the euro," says Esiner.

Pound Powers Back Against the US Dollar

Meanwhile, the protracted downtrend in the GBP/USD exchange rate appears to have come to a momentary halt.

"Sterling emerged from 11-month lows, climbing above the key $1.60 threshold. But its move higher could soon be undercut by largely bearish sentiment toward the U.K. currency. Renewed doubts about the Fed’s next steps have weighed on the dollar, boosting the pound," says analyst Joe Manimbo at Western Union.

Sterling’s move lower this week was reinforced by news that area inflation cooled to the lowest in five years.

Such a benign reading (1.2%) takes substantial pressure off the Bank of England to raise rates any time soon.

"Big risk events await cable next week in BOE minutes Wednesday, retail sales Thursday and the initial estimate of Q3 growth on Friday," says Manimbo.