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Our Q2 survey of major investment bank forecasts shows the potential divergent outcomes for pound sterling against the euro.
From current levels, the most bullish investment forecasts point to a recovery in GBP/EUR that would take the pair materially higher over the coming 6–12 months, reflecting expectations that the UK economy proves more resilient and that relative rate dynamics move in sterling’s favour.
At the other end of the spectrum, the most bearish projections see a notable decline in GBP/EUR, with downside scenarios built around weaker UK growth, political uncertainty and a more supportive backdrop for the euro.
Amidst this is the consensus of investment bank views that we derive from the survey, which we think offers a credible anchor point for those with upcoming money transfer requirements in the coming weeks and months. It is available on request from our partners Horizon Currency, here
The report aggregates forecasts from leading global investment banks, combining multiple models and institutional views into a single benchmark outlook, making it potentially the most credible forecast available.
Above: The charts shows GBP/EUR is consolidating, this can often precede a breakout.
One institution, Barclays, says it now pencils in a modest re-widening of the GBP's fiscal premium in Q2, closer to levels prevailing in November.
The bank's new forecasts reflect this with a 1.1360 target "before a gradual normalisation towards the middle of the post-EU referendum range further out."
Institutions that are constructive on pound sterling's outlook include Bank of America, which sits at the upper end of the forecast range, reflecting expectations for stronger UK resilience and a more supportive global backdrop for sterling.
At the other end, more cautious houses such as Commerzbank and UniCredit anchor the downside, pointing to scenarios where euro strength or weaker UK dynamics weigh on the pair.
The forecast survey confirms the scale of potential moves increases materially further out.
From current levels, the consensus profile points to relatively modest movement over the next three months, suggesting the pair remains anchored near prevailing levels as markets assess the evolving macro backdrop.
We think that the relatively flat consensus forecast is too benign, as it reflects a period of stability in GBP/EUR that will unwind as the effects of the Iran war start to be felt by the world's economies.
The war will impact economies differently, creating scope for relative performance differences, a classic driver of FX movement.
The odds of a move to the higher and lower ends of the forecast range that breaks the consensus is therefore more likely than was the case when we released our year-ahead survey.
Request your copy of the report from Horizon Currency here