Home » EUR » Pound to Euro Long-Term Forecast – Will BoE Rate Cut Keep GBP at 1.17 against EUR?

Pound to Euro Long-Term Forecast – Will BoE Rate Cut Keep GBP at 1.17 against EUR?

Horse statue in front of Bank of England
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GBP EUR exchange rates have slumped this week in response to dramatic UK news, with the ramifications of this week’s Bank of England (BoE) interest rate decision potentially lowering the outlook for long term Pound Euro exchange rate forecasts.

The Pound Euro exchange rate has been through the mill recently, with a high in the exchange rate of 1.1980 rapidly giving way to a low of 1.1772, the worst rate seen since the start of July and a far cry from the pairing’s post-Brexit highs of 1.20/1.21.

The Euro has been conversely boosted against the Pound, although overall EUR exchange rates have been comparatively weak due to lacklustre Eurozone ecostats.

Pound Rates Battered by BoE Rate Cut, Euro Softened on Falling German Factory Orders

Recapping on recent events, the Pound has dived across the board against its peers, due to the Bank of England (BoE) cutting the UK interest rate from 0.50% to 0.25% in the wake of the ‘Brexit’ decision in June.

In addition to shattering the appeal of the Pound by lowering the UK’s interest rate to its lowest ever level, the BoE also set alarm bells ringing when the minutes stated that;

‘In the real economy, although the weaker medium-term outlook for activity largely reflects a downward revision to the economy’s supply capacity, near-term weakness in demand is likely to open up a margin of spare capacity, including an eventual rise in unemployment. Consistent with this, recent surveys of business activity, confidence and optimism suggest that the United Kingdom is likely to see little growth in GDP in the second half of this year’.

The Euro has been more positive on the whole, although losses have still resulted from weak German factory orders for June.

BayernLB’s Stefan Kipar has urged caution on jumping to conclusions, stating that;

‘It remains to be seen how strongly ‘Brexit’ affected the German economy via the trade channel in July. GDP growth should be lower over the course of the year than at the beginning of the year’.

Could Pound Exchange Rates Fall Even Further against its Peers after ‘Brexit’?

Although the BoE rate cut triggered a major knee-jerk decline in the value of Pound exchange rates, there have been forecasts that this will only be the tip of the iceberg when it comes to consistently low rates.

David Meier, an economist at Julius Baer, has predicted that;

‘While foreign exchange markets reacted rather unimpressed, today’s measures and the potential for additions down the road will push the GBP lower gradually. We see further support for our below-consensus 12-month EUR/GBP outlook at 0.95’.

Speaking in more dovish vein than Meier has been UBS Head of UK Rates Strategy John Wraith, who has said;

‘In foreign exchange, we feel comfortable with year-end targets of 0.90 for EUR GBP and 1.29 for GBP USD. The path for sterling is also dependent on political considerations, including the timing of the triggering of Article 50, and the evolution of economic data, but the balance of risks is for further weakness’.

ECB President Mario Draghi

Will Further BoE and ECB Policy Easing Emerge to Unsettle Long Term GBP EUR Forecasts?

While the BoE has certainly done some damage to the Pound Euro exchange rate with its interest rate cut, the UK central bank may be gearing up for a repeat performance, which would likely send Sterling down against the Euro and other peers once again.

Speaking to BBC Radio 4, BoE Deputy Governor Ben Broadbent has stated that ‘We have huge amounts of evidence on the impact of monetary easing’, adding that ‘we had ample evidence to act’.

With regards to the other major central bank in Europe, the European Central Bank (ECB), economists have increasingly been turning to the early September interest rate decision. This is expected to act as a litmus test for how dire the ECB considers a post-‘Brexit’ Eurozone to be, with Royal London Asset Management economist Ian Kernohan estimating that;

‘Inflation remains far below the ECB’s target of 2% and while headline inflation will rise later in the year, thanks to the fading impact of a lower oil price, underlying inflationary pressures still remain very low. Delaying [interest rate action] until September will allow an assessment of any ”Brexit” impact to be outlined in the new ECB staff forecasts’.

Given that the BoE has ostensibly cut the UK interest rate in direct response to a ‘Brexit’-induced economic slowdown, the chances of ECB interest rate action have increased substantially.

Recent GBP EUR Exchange Rates

The Pound Euro (GBP EUR) exchange rate has been trending in the region of 1.1804 and the Euro Pound (EUR GBP) exchange rate has been trending in the region of 0.8471 today.

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