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

GBPEUR Forecast Highlights

• GBPEUR fluctuated sharply within 1.160-1.190
• The Euro is displaying different trends against major currencies; modestly weak against GBP at the moment
• GBPEUR to grind higher; medium-term target at 1.200

How has the Pound performed against the Euro recently?

For the past few weeks, the Euro has been displaying varying performances against different currencies.

Versus the US dollar, for example, the Euro rallied from 1.06 to 1.120. This is due to a sudden contraction in the value of the dollar. But against the haven currency Swiss franc, the rate is on the cusp of breaking new all-time lows (in favour of the Swissie). In fact, as you can see from the chart below, the Euro has been locked in a long-term downtrend since 2019. As worries about the global economy increases, investors are seeking safety in the Swiss franc despite the country’s relatively low policy interest rates (currently at 1.25 percent).

What about GBPEUR? Earlier in the summer, I commented on GBP’s strength as the rate advanced to 18-month highs at 1.190. But the sharp market correction in early August dented this bullish trend. By the end of the month, the rate recovered to 1.190 again (see below). Given the recovery rally is still stuck at the level, 1.190 is now viewed as the ‘technical ceiling’.

Will the resistance give way? Based on the day-to-day flow of the macro statistics, I suspect it will hang on further. The main reason is that neither region (UK, Europe) has a decisive edge against each other. For a rate to trend strongly, either their monetary or economic trends have to diverge and knock out of equilibrium. Most economic data these days show UK-Europe growth rates moving in the same direction. Therefore, a period of consolidation around 1.160-1.190 is expected, perhaps with occasional ventures near the 1.200 barrier.

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 summer now firmly behind us, you may want to use GBP’s strength to exchange some Euros in preparation for the Autumn/Christmas holidays.  You can to secure these Euros with a currency forward.

Seeing GBP’s modest strength, you may of course choose to wait further. The next upside target is at 1.200. This strategy works for people who can afford to delay buying the Euros. The risk is that Sterling may unwind its recent gains below 1.180 like it did in early August. 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?

Sterling got off to a firm start in the second half of 2024. Broadly speaking, GBP is maintaining its strength throughout the summer.

The only thing that is putting a slight drag on Sterling is the interest rate cut in early August. But that decision was widely expected. Based on recent statistics, the market is expecting another rate cut towards the end of the year on declining inflation and slowing growth.

At this point, there is insufficient divergence in the economic fortunes of UK and Europe to predict a wide move in GBPEUR. Look at this real GDP growth chart below, as estimated by the renowned IMF recently.

For 2024, UK is predicted to achieve a real growth rate of just 0.7 percent. The Eurozone, on averaged, is not doing much better either. The GDP growth is expected at 0.9 percent. Germany, the industrial powerhouse, is envisaged to have a very flat growth rate. Thus when the ECB eases its monetary policy, chances are the BoE will follow, sooner or later.

Overall, GBP is likely to have a modest grinding uptrend against the EUR. Expect plenty of counter-reactions (or pullbacks), like the one we saw in August. Some near-term contrarian trading tactics (buy corrections; sell rallies) may come in handy to catch trends in the GBPEUR.

Source: UK Parliament (2024)

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

While GBPEUR has returned to its near-term ceiling at 1.19, the wider investment community is not impressed by the rally.

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

For example, in the first quarter of 2025 GBPEUR is expected to trade in the vicinity of 1.150. This is not far off from its August lows. A few forecasters pencilled in a drop below 1.10 in six months time.

But these exchange rate predictions should be viewed with some scepticism. The FX market is inherently volatile, especially now that many countries are in a transition state. I expect the rate to stay in a messy grinding uptrend for now.

Source: Exchangerates.org.uk (Sept 2024)