Exchange Rate Forecasts

Pound euro exchange rate forecast: GBP to outperform the euro going forward, GBP/USD to weaken suggest Barclays Capital

• 

Details

Published on Wednesday, 08 February 2012 12:03

Written by Sam Coventry

The pound euro exchange rate is 0.25% lower on the day, GBP/EUR is now at 1.1954. GBP/USD is now at 1.5882.

A morning foreign exchange rate note from Barclays Capital has forecasted further appreciations in the pound euro exchange rate.

The note from BarCap comes ahead of tomorrow's MPC decision at the Bank of England where analysts forecast another 50bn GBP to printed to help support the UK economy.

---

Advertisement - Article Continues Below

---

The note from BarCap's Sara Yates says:

"The UK is weak, but recent data do suggest it has turned a corner and will not double dip. Nonetheless, the recovery will be gradual and a £50bn extension of the asset purchase programme by the MPC is expected on Thursday. Despite this, GBP has outperformed the EUR and the USD year to date. We expect the outperformance of the EUR to continue, but look for GBP/USD to depreciate as relative outperformance of the US economy leads to a somewhat resurgent USD."

BarCap forecast the EUR/GBP exchange rate to be driven towards 0.80 over the next year as the ECB loosens monetary policy by substantially more than the MPC.

And with EUR/GBP still overvalued (despite the recent sell-off), valuation is also likely to matter suggests Yates.

With regards to the pound dollar exchange rate Yates says:

"We remain structurally bearish on GBP/USD. The UK is much weaker than the US, and the MPC is expected to expand the asset purchase programme, which would keep the UK yield curve relatively flat."