Pound to Euro Exchange Rate Forecast Raised by Lloyds

27/05/2015 01:25 AST

As we enter the middle of 2015 we take stock of where the pound euro exchange rate is and hear from two leading institutional researchers that while there are better exchange rate levels ahead the euro will ultimately recover.

Analysts at Lloyds Bank have told clients they are raising their forecasts for the British pound against the euro in the near-term.

The pound sterling has risen against the euro through the course of May with the low point of 1.3362 being quickly forgotten as electoral uncertainty was swept aside by the Conservative victory. The GBP-EUR pair is now looking ready to test the 1.42 region once again with momentum indicators currently advocating for further gains.

Technically speaking however, we will need the current levels to be decisively left behind if new highs are to be achieved – the pound to euro exchange rate has proven time and again that it struggles to attract fresh buying interest at levels around 1.41 with many in the market considering anything higher to be too expensive.

That said, fundamental analysts at Lloyds Bank see no reason to doubt that the GBP to EUR will achieve a level of 1.44 in 2015. In their latest monthly exchange rate forecast note Lloyds Bank tell us they are raising their near-term sterling profile on the back of the eradication of the political muddle a new coalition or minority government would have posed. Be aware that any currency rate referenced in this piece refers to the wholesale markets, when you make an international payment / transfer your bank will offer you a rate at their discretion. However, using an independent provider will get you closer to the market rates, in some instances this results in up to 5% more FX being delivered, find out how.

Furthermore, Lloyds are predicting the Bank of England will raise interest rates in 2015. Interest rate moves remain front and centre for currency valuations at the moment – global money flows to where higher interest rates offer higher yields to investors.

Explaining what this means for the British pound v euro exchange rate, Lloyds tell their clients:

“We have left our central US and UK policy rate ‘lift-off’ dates unchanged at Q3 and Q4 this year, respectively. However, we have moderated the pace of tightening in the US and now see only one 25bps (previously 50bps) rise this year to 0.5% and 75bps (previously 100bps) of increases in 2016 to 1.25%. For the UK, we continue to see one 25bps rise this year to 0.75% by end-2015 and 50bps of rises next year to 1.25%. We concede, however, that the risks of a first move coming slightly later than our Q4 forecast have risen over the past month.

“The removal of UK post-election uncertainty in the formation of a viable government means that we have revised up our near-term sterling FX forecasts, but we have left unchanged our end-2015 targets for GBP/USD at 1.54 and EUR/GBP at 0.69 (or GBP/EUR at 1.44).”

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