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

GBPEUR Forecast Highlights

• GBPEUR rallied to multi-quarter high (1.19) in June
• Further political uncertainty in France and monetary easing from the ECB may weaken the Euro
• GBPEUR to grind higher; medium-term target at 1.200

How has the Pound performed against the Euro recently?

The Euro is creaking under increasing pressure. Last month we witnessed a sharp rise in political tensions in France. Specifically, the country is locked in political bickering after Macron’s party failed to win an outright majority in parliament.

While the electorate decided to put a block on Marie Le Pen’s party (National Rally), the left-wing party New Popular Front NPF managed to secure the largest seats (182). President Macron’s party clinched the second spot. As the largest party in parliament, NPF arguably has the right to pick the next French prime minister to implement its socialist agenda. This is where the messiness starts. NPF’s political agenda does not match that of Macron’s centrist leanings. For example, NPF argued for a 90 percent tax on earnings above 400,000 euros.

Source: theguardian.co.uk

In comparison, the UK political situation has been resolved. The country is entering into a period of relative calm after Starmer’s decisive election victory. In the words of a Financial Times analyst, “Britain and France are sitting on the opposite ends of a political see-saw.” As a result, GBP strengthened against the Euro over the past few weeks as traders digest GBP-EUR relative political positions. Prices finally overcame the range resistance at 1.1750 to trade at a 20-month high at 1.190, before falling to reaffirm 1.180 as support (see below).

The question now is: How long will GBP’s strength last? Political uncertainties, for most countries, tend to persist. Remember the chaotic days of Teresa May when she tried to push through a hard Brexit? It lasted nearly a year (2018-2019). To resolve the current political impasse may take a good few weeks. For now, the French president will now try to stabilise the government composition by forming a workable coalition after the Olympics.

But France is only a country, albeit an economically large one, within the Euro. Ergo, the Euro is unlikely to suffer huge losses as counterweights exist elsewhere in the continent. The Euro may weaken further against Sterling, but the trend is not an overwhelming one.

Is it a good time to buy Euros with Pounds?

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

With the 2024 Olympics starting in a few weeks, yes you might want to use GBP’s strength to exchange some Euros.  You can to secure these Euros with a currency forward.

Of course, you may wish to wait further – betting on further GBP strength. The next upside target is at 1.200. This only works if you can afford to delay buying the Euros. The risk is that Sterling may unwind its recent gains below 1.180. Buying on the spot when you need the Euros always carries some risks.

Will the pound get stronger against the Euro in 2024?

Sterling got off to a good start in 2024 and outperformed 90 percent of all other currencies in the first quarter. GBP is broadly maintaining most of this strength in July.

As we cast our eyes further, however, there are a few factors impacting the Pound. The first is the shifting monetary policy. Many analysts are expecting a rate cut in August after the Bank of England held the base rate at the 16-year high. However, not all MPC members agree with this. Jonathan Haskel, for instance, would like to hold interest rate unchanged until inflation is truly beaten. This may complicate UK’s interest rate forecasts which, in turn, feed into GBP rate dynamics.

Should the European Central Bank cut again in the next couple of meetings while the BoE holds the base rate unchanged, GBPEUR may strengthen temporarily – until the BoE also start to cut interest rates. Tight economic synchronicity between UK and Europe means that both regions are experiencing same economic shocks like high energy prices. Divergence (or decoupling) is hard when both regions trade heavily with one another.

That’s the monetary side. Chartwise, GBPEUR is on an uptrend as defined by higher highs and higher lows. Historically, GBP tends to have a ‘grinding’ uptrend against the EUR. This means that even the rate is on a bull trend, plenty of counter-reactions (or pullbacks) are observed. Some near-term contrarian trading tactics (buy corrections; sell rallies) are therefore needed to catch the GBPEUR uptrend.

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

While GBPEUR has rallied into new multi-month highs, the wider investment community is not wholly impressed. This is reflected in the price forecasts of the exchange rate.

If we look at the aggregate forecasts of GPBEUR, the consensus rates trend lower as we look further ahead. The projection chart below is taken from Exchangerateforecast.org.uk.

Most analysts are not convinced that Sterling will continue to show strength from here, despite the recent political turbulence in France. For example, the first quarter of 2025 GBPEUR is expected to trade in the vicinity of 1.150 (see below).

But these exchange rate predictions should be viewed with some scepticism given how dynamic the macro/political situations are right now. Technically the rate is in a messy grinding uptrend into the 1.190 level.

Source: Exchangerates.org.uk (July 2024)