Pound To Euro FX Forecast: 1.1905 By End-2024 Say Rabobank (2024)

Foreign exchange analysts at Rabobank forecast that the Pound to Euro exchange rate will strengthen to 1.1905 at the end of 2024.

NatWest Bank sees scope for GBP/EUR gains to 1.18 at June 2024, but expects renewed losses to 1.13 at the end of 2024.

Exchange Rates UK Research brings you the latest institutional forecasts (Rabobank, NatWest, ING, Wells Fargo, Credit Agricole) and the GBP/EUR news for the week."

GBP/EUR was held in relatively narrow ranges during the week with a slight net advance to around 1.1635.

The near-term Pound outlook is likely to be dominated by the forthcoming UK wages and inflation data, especially given the impact on Bank of England interest rate expectations.

As far as UK data releases are concerned, UK GDP increased 0.3% for November after a 0.3% decline the previous month and compared with expectations of a 0.2% increase.

On a 3-month basis, however, GDP declined 0.2% from the previous three months and compared with expectations of a 0.1% decline.

ING is more positive on the UK outlook with potential support on monetary and fiscal grounds.

On the fiscal side, ING noted that; “there's likely to be just shy of 1% of GDP worth of tax cuts that could be available, much of which would likely go on income tax if press reports are accurate. That could boost growth this year by, say, 0.2 to 0.4ppts, depending on what was announced.”

ING added; “For the Bank of England, stickiness in wage growth and services inflation, as well as the likelihood of a fiscal boost in March, potentially means rate cuts will come a little later than markets expect. We're sticking with our current call of an August cut, with 100 basis points of easing through the remainder of this year.”

Wells Fargo commented on the inflation decline seen late in 2023; “While these are clearly welcome developments, wage inflation is likely still too high to sustainably achieve the central bank's 2% inflation target, and it's not yet clear how long the more muted pace of price increases will persist.”

Nevertheless, it added; “The U.K. growth and inflation slowdown suggests the risks are tilted towards an earlier rate cut than our current base case of the August meeting. An initial rate cut could perhaps come in June, possibly May.

As far as the Euro-Zone is concerned, the Sentix investor sentiment index suggested that there had been stabilisation in sentiment.

The German industrial production and factory orders figures were. However, weaker than expected.

ECB Council member Schnabel stated that financial conditions have eased and it was too early to talk about interest rate cuts.”

Schnabel added; “Policy rates need to be sufficiently restrictive for as long as necessary to ensure that inflation sustainably returns to 2%. A slowing economy is part of monetary policy transmission.”

Schnabel also stated that the economy would remain weak in the short term.

According to ING; “One factor that we wish to keep highlighting, though, is the rather wide potential for the euro to benefit from an unwinding of ECB dovish bets in the coming months. Markets continue to price in 140bp of easing by year-end, while our economics team only forecasts 75bp.”

NatWest expects interest rate trends will underpin the Pound; “Sterling is expected to maintain a healthy yield differential over the EUR over the next year. NatWest economists believe that the ECB will be one of the first major central banks to start lowering interest rates.

NatWest expressed concerns over the Euro-Zone economic outlook; “Growth is weak and inflation appears to be falling quickly. The boost to services from the region's Covid lockdown exit has lost vigour, while manufacturing has not been immune to a global sectoral slump.”

The bank, however, is also still wary over UK fundamentals; “It's not a clean story as the sensitivity of high leveraged UK households exposed to floating rate mortgages means the collateral damage on relative growth lessens the positives of higher BoE policy rates.”

In this context, the bank forecasts that the Pound will lose ground later in the year.

Credit Agricole commented; “Investors will continue to scrutinise incoming Eurozone data as they try to anticipate the next steps by the Governing Council as the 25 January ECB policy meeting slowly comes into view.”

Nordea considers that markets are pricing in too many ECB rate cuts; “We still think rates will fall at a slower pace than currently being priced in, though risks are tilted to the downside in our baseline forecasts.”

Markets will be monitoring UK political developments over the next few months.

Gabriella Dickens, senior UK economist at consultancy Pantheon Macroeconomics, commented; "The general election, which will probably be held in the autumn, likely won't weigh materially on sterling."