The Difinitive Pound to Euro Forecasts from 45 Leading Institutions

The world’s top 45 strategists put their heads together and their forecasts suggest pound sterling is unlikely to suffer further extensive declines against the euro from current levels.

45 strategists polled by Reuters this week have downgraded their forecasts for the British pound against the euro.

No doubt they will have lowered their forecasts in the wake of the early February Brexit-inspired meltdown in a nod to the massive downside potential in the pair should the UK vote to leave the EU.

However, even with the downgrades the projected targets suggest that the pound is unlikely to suffer any sustained losses from current levels.

In fact, against the euro, sterling is expected to gain ground as we move through the year.

According to forecasters action at the European Central Bank on the 10th of March is likely to protect the pound against the euro which would be seriously hampered by any aggressive stimulatory action.

Reuters polling data confirms currency analysts are basing current projections on the assumption the European Central Bank is almost certain to cut its deposit rate further into negative territory and possibly expand its asset purchase program next week.

Indeed, there are up to ten different measures the ECB may adopt, combinations of which make the event incredibly hard to call.

The worst-case scenarios, that include EURGBP parity, as discussed here, would not feature in the polling data as they do not form a high probability outcome.

Based on the working assumptions around Brexit and ECB action the pound to euro exchange rate is forecast to be at 1.2953 in one month’s time, around about where the exchange rate is today.

In six month’s time, in the wake of the EU referendum, the exchange rate is forecast to rise to 1.3532.

In a year the exchange rate is forecast to rise to 1.3812.

The respective forecasts made by the leading institutions were 1.3280, 1.3550 and 1.400.

Notably, we are yet to see any major changes to institutional projections based on increased chatter about a potential Bank of England interest rate cut.

In the wake of the poor Services PMI figures released on the 3rd of March we have noted more talk about the potential for Bank of England members to start voting for interest rate cuts.

Presently forecasts are largely based on the assumption that the next move from the Bank of England will be a rate rise, should this change we could expect notable cuts to forecasts over coming weeks.

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