GBP/EUR Forcast to Rise and then Fall Back in 2015 by Danske Bank

Exchange rate forecasts for 2015 for the pound euro exchange rate from Danske Bank confirm that sterling is likely to outperform its Eurozone counterpart. However; there is a limit to the heights GBP is expected to reach.

2014 has offered steadily improving levels for those using sterling to buy euro, the rate has risen from a low of 1.19 in March to a high of 1.2876.

Long-term momentum indicators remain broadly positive provided the channel, as defined in the below image, is adhered to:

Note: The above levels are inter-bank levels - when passing on a retail rate your bank levies a spread-charge. However, an independent FX analyst will guarantee to undercut your bank's offer, thereby delivering more currency. Find out more here.

Our latest update on the GBP/EUR pair has just gone live here.

Euro Pound Exchange Rate Forecast to Sink Through 2015

For those seeking insights into future performance of the euro and pound it would appear that at this point in time the outlook remains pro-GBP.

However, an analysis by Danske Bank tells us timing is everything:

"We expect EUR/GBP to trade lower in the coming 12 months, primarily driven by divergent growth and monetary policy. We expect the EUR/GBP downside to unfold on a three-six month horizon, supported by a repricing of the UK money market and we target EUR/GBP at 0.78 in 3M and 0.76 in 6M (from 0.77 previously).

"In six-12 months time, we expect EUR/GBP to bottom out as a weaker euro should support a rebound in growth and inflation expectations. We now target EUR/GBP at 0.79 in 12M (0.76 previously)."

0.79 euro to pound sees 1 pound convert into 1.2658 euro.
0.78 translates into 1.2820.
0.76 translates into 1.3158.

Risks to the Forecast

According to Danske's Morten Helt there are risks to the scenario:

"In the short term, a deterioration in the global business cycle remains the main risk factor for the timing of the first BoE rate hike and thus the pace of GBP strengthening."

Minutes from the September meeting showed no change in the board’s stance relative to the August meeting where two out of the nine members dissented in the vote to keep interest rates unchanged, advocating an increase in the interest rate.

While the timing of the first BoE rate hike will still largely depend on the development in the labour market (wage growth in particular), it is likely that the balance of the board will tilt further towards the hawks in the coming months as the economy expands further.

"Given the recent deterioration in the global growth picture, we have postponed our expectation for the first BoE first rate hike from January to May," says Helt.

UK Economy to Expand at a Decent Pace

It was reported in October, as expected, that Britain’s economy lost some horsepower in the third quarter, as growth slowed to an increase of 0.7 percent from a 0.9 percent rate in the second.

The slower growth followed other cautionary signs on Europe’s No. 3 economy this week in generally dovish central bank minutes and news of a contraction in consumer spending in September.

"Taken together, it keeps prospects of a U.K. rate hike on a more distant horizon, capping sterling upside," say Western Union in a note to clients.

Nevertheless, "the UK service sector remains at high levels and thus still points to ongoing strong activity and possibly even improvement as forward-looking components improved. We expect the UK economy to continue to expand at a decent pace in the coming quarters, causing labour market slack to gradually vanish," says Helt.