GBP/EUR year-ahead forecast: Median, range and upside/downside risks based on projections from 20+ investment banks and FX analysts.View forecasts
The Pound to Euro (GBP/EUR) exchange rate dipped sharply to 2-week lows below 1.1450 last week on political fears before recovering to near 1.15 as immediate pressures eased.
Morgan Stanley considers lower interest rates and renewed fiscal fears will be key elements undermining the Pound and it sees scope for GBP/EUR to weaken towards 1.13 over the next few months.
The Bank of England (BoE) held interest rates at 3.75% last week, but with a dovish 5-4 decision which triggered a shift in market expectations with traders now much more confident in a cut at the March meeting.
The bank sees scope for further rate cuts later in the year and this would have important Pound implications. Morgan Stanley considers that a key prop for the Pound during the past year has been the yield advantage, especially with global interest in carry trades.
In this context, the erosion of yield support is liable to have important negative implications.
The bank also sees significant risks surrounding fiscal policy with the threat that there will be an additional risk premium on UK assets with the potential for selling of UK bonds which would have negative Pound implications.
