The Pound to Euro (GBP/EUR) exchange rate recovered from the latest political fears surrounding Prime Minister Starmer, but failed to hold above 1.15 and posted fresh losses after the latest UK jobs data.
Danske Bank expects overall yield trends will undermine the Pound this year and forecasts that GBP/EUR will retreat to 1.1240 on a 12-month view.
At this stage, Danske Bank is forecasting a further Bank of England rate cut in April, but it sees a notable risk of a move in March and the latest UK jobs data is likely to reinforce expectations of an early move. The unemployment rate hit a 5-year low and there was also a sharp slowdown in wages growth to a 14-month low.
The bank expects at least one further rate cut later in the year which will undermine the Pound’s yield support and Danske also expects that the Euro-Zone will register stronger growth than the UK this year, underpinning Euro sentiment.
Risk appetite has held firm with the FTSE 100 index close to record highs and this has helped protect Sterling. Danske notes that the Pound will be more vulnerable in global markets if there is a negative risk environment.
