Pound Forecast to Recover to 1.33 Against the Euro by June

Pound Forecast to Recover to 1.33 Against the Euro by June

8 March 2016, 18:33
Vasilii Apostolidi
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Forecasts from Lloyds Bank are pricing a recovery in the pound to euro exchange rate to take us to above 1.30 by the time of the EU referendum.

In a further to the idea that the British pound is undervalued against the euro we hear analysts at Lloyds Bank are forecasting a steady recovery to 1.33 by the time of the EU referendum.

The forecast chimes with the consensus view held at the leading 45 institutional researchers who forecast the rate to rise to 1.3532 in 6 months time.

While the pound to euro exchange rate has bounced up from its February low of 1.26 but has struggled to break above 1.30 in early March.

Despite the inability to break above what is clearly a significant support/resistance zone, “the recent move higher suggests a base may have been found near the 1.26 level,” say Lloyds.

For the pair’s outlook, while Brexit and Bank of England interest rate expectations are important, Lloyds reckon the European Central Bank could prove to be a major headache for the euro.

No doubt the ECB’s March meeting, due in a matter of days, will help cement expectations.

(We see markets as being too sanguine heading into the meeting.)

“Looking ahead, we expect UK policy rate uncertainty and EU referendum risks to be overshadowed by additional ECB stimulus in March. This should ultimately push GBP/EUR modestly higher through year end,” say Lloyds.

The risks to the Lloyds short-term forecast, however, remain skewed to the downside given EUR resilience over recent week despite expectations of more QE from the ECB.

“Our long-term fair value estimate for GBP/EUR ranges between 1.25-1.27. We forecast GBP/EUR to end 2017 at 1.32,” say Lloyds.

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