The Definitive GBP/EUR Exchange Rate Forecasts 2016

A compilation of financial institutional forecasts for the British pound vs euro pair confirm it will once again deliver inter-year best exchange rates.

A compilation of forecasts from the world's leading currency analysts confirms the pound will recover against the euro. However, there are some interesting targets being expressed with one bank even warning that declines to 1.20 in three months from now.

A Reuters poll of predictions suggests the uptrend that has characterised recent years will restart with the rate seen at 1.43 in March 2016.

The analysis sides with our own predictions for a resumption in sterling's advance.

Data presented by StarMine, a division of Thomson Reuters, shows that the median forecast for GBP/EUR in one month is at 1.3570, 3 months = 1.4035, 6 months = 1.4300 and 12 months = 1.4525.

We believe the median estimate is by far the most accurate forecast to lean on as it smooths out what can be wildly divergent predictions.

"Predicting currency movements is not an exact science. Forecasts from major financial institutions for the GBP/EUR rate vary dramatically, with a predicted median of £1/€1.4525 in twelve months time. There is also a marked difference between the minimum rate of £1/€1.0750 and maximum rate of £1/€1.8280 listed by the banks. This means that for every €1 million changed to sterling, you could be nearly £400,000 better or worse off!" says a note on the matter from Smart Currency Business.

The one month maximum forecast for the pound to euro conversion presented by the Reuters survey sits at 1.50, an unlikely event considering the downtrend the GBP/EUR finds itself in.

Indeed, we see the achievement of a decline to 1.30 as being the most likely outcome unless trend momentum lower is broken.

The minimum forecast from Reuters is at 1.3045 - what is presented as an outlier could well be the more accurate.

The minimum forecast is seen at 1.20 in 3 months from October, 1.13 in 6 months and 1.0750 in 12 months which takes us to September / October 2016.

The best exchange rate (maximum) forecast is seen at 1.5980 in 3 months, 1.75 in 6 months and a whopping 1.82 in a year's time.

Looking at the big-name institutions, provided via Smart Currency Business, we see Nomura predicting 1.5190 in one year's time, we note that Nomura have tended to be at the more generous end of the spectrum over recent years.

Lloyds on the other hand are erring on the side of caution with a forecast of 1.27. To read the latest viewpoint from Lloyds please click here.

British Pound: The Week Ahead

From a fundamental perspective we will be watching three issues in the week ahead.

1. September Retail Sales (22 Oct): Consensus forecasts price the ex-auto fuel component to rise 0.4% m/m (4.7% y/y) in September. "Brisk real earnings growth should provide a tailwind for consumption although measures of consumer confidence have lost some momentum in recent months," say TD Securities hinting at the prospect for disappointment.

2. September Public Sector Net Borrowing (21 Oct): While recent monthly numbers have been tossed about by the timing of returns in some of the underlying tax categories, PSNB data so far in 2015 continues to point to strong gains in tax revenues, suggesting a healthy domestic economy.  Markets expect September’s ex-banking data to show a slight decline of borrowing to GBP 11.0 bn for the month, which should leave net borrowing for FY2015/16 as a whole on track to decline relative to last year.

3. China President Xi Jinping’s State Visit (20-23 Oct): Details are starting to leak out ahead of President Xi’s visit next week (the first Chinese state visit in a decade), with some major investments rumoured to be announced during his state visit. Look to announcements relating to investment in nuclear power, high-speed railways, and telecommunications to help boost UK business investment over the medium term.

The above graphic is courtesy of Smart Currency Business.