Pound To Euro Forecast – Is Now The Best Time To Buy Euros From Pounds?

GBPEUR Forecast Highlights

• GBPEUR rallied through 1.190 and reaffirmed that level as support
• Further resistance is noted at 1.210-1.220; which may cap the uptrend for now
• Economic and monetary factors to dictate a new direction for GBPEUR

How has the Pound performed against the Euro recently?

Since the last update in early September, GBPEUR has display a few interesting moves.

The GBPEUR exchange rate, after several attempts, finally broke through the 1.190 resistance (in favour of GBP). And following a retest of that level as support, GBPEUR quickly rallied back to the highs. So, it appears that GBP is continuing its medium-term uptrend against the Euro.

The problem now, technically speaking, is the resistance band at 1.2100. As you can see below, this ceiling dates all the way back to early 2022, thus signifying the entrenchment of GBP selling around this level. Will Sterling be able to overcome this ceiling in the months ahead?

For now, this is hard to say. Already the rate probed this resistance twice and failed. The market is not entirely convinced that Sterling is about to become significantly stronger than the Euro in the near term. One reason is the relative economic trends between the two regions.

While the European economy is fairly static (GDP growth this year recently estimated at just 1 percent by the IMF) , the UK is not doing great either. British second quarter GDP came in at a mere 0.5 percent.

The currency market is waiting for new economic factors (eg, UK Autumn budget or further ECB rate cuts) that could disturb the rate equilibrium before renewing the assault on the overhead ceiling. And based on the rate’s past pattern, a period of near-term sideways action is possible.

Is it a good time to buy Euros with Pounds?

Based on the above analysis, it is a good time to buy Euros now?

If you need the Euros now, you may want to use GBP’s strength to exchange some Euros. The rate is still trading close to 1.200. Historically, this is a good rate to sell GBP and buy EUR. You can secure these Euros for use in the future with a currency forward.

Of course, you can wait further for the rate to appreciate further. The risk is that Sterling may unwind its recent gains. Buying on the spot when you need the Euros always carries some risks.

Will the pound get stronger against the Euro as we head into 2025?

A year ago, the key economic fear around the world was a resurgence in inflation. But the last few quarters saw a diminishing rate of price increase.

In the Eurozone, for example, most major economies are registering inflation rates below the critical 2 percent level. In Germany, the September CPI figure was a lowly 1.8 percent. In Italy, the same figure reached sub one (0.7 percent). In all, the major trend in CPIs across Europe is unmistakably down (see below).

This means that inflation concerns are misplaced. Is the new threat on the horizon? Sluggish economic growth. Consumer, after two years to rapid price increases, are seeing a steep fall in their purchasing power.

In the most recent economic survey (Oct 2024), the IMF observed European growth rates to be ‘falling short of its full potential’. The International Monetary Fund further concluded that:

Uncertainty about persistent core inflation, policy directions, and geopolitical conflicts, is dampening the near-term outlook. In the longer term, perennially weak productivity growth—a result of limited scale and business dynamism–-amid new headwinds from fragmentation and climate change are holding back growth potential.

In other words, the Eurozone is at risk of becoming an economic laggard. Based on this observation, could GBPEUR break above the 1.210-1.220 resistance band? Well, given the close economic synchronicity between UK and Europe, this relative divergence in economic growth needs to be further amplified before the market is convinced that EU will lag behind Britain.

For now, the GBPEUR FX rate is likely to stay where it is until new disequilibrium factors emerge.

Source: Yardeni (Oct 2024)

What is the GBPEUR forecast in weeks, months, years?

The market is expecting GBPEUR to regress to its near-term range

If we look at the aggregate forecasts of GPBEUR in the next few quarters, few are projecting a significant rally above 1.200. The projection chart below is taken from Exchangerateforecast.org.uk.

In fact, the rate is expected to drop steadily to 1.15 in the first quarter of 2025. Some wider predictions even pencilled in a drop below 1.10 in six months time.

These exchange rate predictions, however, should be viewed with some scepticism. The FX market is inherently volatile and I expect the rate to stay in a messy grinding uptrend for now.

Source: Exchangerates.org.uk (Oct 2024)