GBP/EUR: Guidance from central bankers likely to have some bearing on the pair – Lloyds Bank

Analysts at Lloyds Bank explains that the combination of both GBP weakness and EUR strength has pushed GBP/EUR lower in recent weeks, with the pair briefly dipping below 1.14 in early March.

Key Quotes

“With policy rates in both regions expected to remain on hold this year, guidance from central bankers are likely to have some bearing on the currency pair over the coming twelve months. There is a risk that the Bank of England could continue to talk up the prospects of future policy tightening, particularly if, as we expect, the economy continues to hold up well and ‘core’ inflation moves higher.”

“Over the coming quarters developments in the political landscape are likely to remain the most important driver of GBP/EUR. The negotiating stance of the UK government and broader political concerns could all add to the volatility around GBP.”

“Meanwhile, the French and German elections, alongside the Greek debt negotiations, present clear risks to the EUR. Our central expectation is for GBP/EUR to appreciate towards its recent range highs, reaching 1.18 by Dec-17. However, given the prevailing risks, there is scope for significant bouts of volatility in the interim.”