British Pound to Euro Exchange Rate Unlikely to Fall Below 1.110
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More research has shown that the GBP may be reaching a bottom against the Euro and Dollar but don't expect a strong recovery just yet.
Fresh insight into the likely trajectory of the GBP/EUR exchange rate has been provided by the team at Bank of America Merrill Lynch Global Research.
Analysts have reflected that the focus for their institutional clients has been, “how much further can GBP fall,” and, “what conditions would be needed for a meaningful recovery in GBP?”
We would imagine this is also the main concern facing the majority of our readers who have their eyes on international payments based on this pair.
In trying to answer that question we have brought a number of fascinating predictions, including most recently from Barclays, where analysts say the bottom in Sterling’s decline may have been reached.
This is also the view put forward by Nordea Market's Aurelija Augulyte who has cited a list of reasons to believe the bottom is nigh.
In addressing the outlook for the GBP/EUR exchange rate, Bank of America have firstly compared the current bout of GBP weakness with that suffered in the 2008 financial crisis where the high in EUR/GBP was 0.98.
This is a low in GBP/EUR of 1.0204.
“Through previous idiosyncratic UK crises, EUR/GBP has never sustained a break above 0.90 and we doubt it will do so again this time around,” says Kamal Sharma, FX Strategist at Bank of America.
0.90 equates to 1.11 in GBP/EUR terms (a level that Morgan Stanley have set their GBP/EUR downside forecast at).
Sharma makes an important distinction between the nature of the 2008 crisis and the current Brexit vote shock.
In 2008, the sharp GBP depreciation was triggered by a significant threat to the UK banking sector which was countered by an aggressive Bank of England policy response (rate cuts and QE).
Rate differentials consequently moved markedly against GBP and in favour of EUR.
“We think this is unlikely to happen this time around and though we expect the Bank of England to once again deliver with renewed accommodation, our expectation for further ECB easing in the months ahead should limit the upside in EUR/GBP," says Sharma.
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