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Based on a new research report from Commerzbank, this is what you need to know if you plan to buy euros with pound sterling in the next few months.
Don't expect significant gains for the pound against the euro: While the pound has shown recent strength, the Commerzbank report forecasts a relatively flat trend for the GBP/EUR exchange rate in the coming months.
This means that if you wait to buy euros, hoping the pound will strengthen significantly, you may be disappointed.
"With inflation remaining stubbornly high, the real economy picking up and the prospect of a more stable government, we expect the pound to remain well supported in the coming months. However, recent comments from the BoE have increased the risks," says Michael Pfister, FX Analyst at Commerzbank.
Consider these factors influencing the euro:
The report suggests that the euro could strengthen in the coming months because the European Central Bank (ECB) is expected to make fewer interest rate cuts than the market currently anticipates.
This potential strengthening of the euro could make it more expensive to buy euros in the future.
In the near-term, keep in mind next week's ECB meeting, where there is a high likelihood another interest rate cut is announced. This could trigger some euro weakness.
GBP/EUR Forecast
The report suggests a fairly flat trend for the Pound to Euro exchange rate in the coming months.
Commerzbank forecasts the EUR/GBP rate to be 0.84 at the end of December 2024 and 0.83 at the end of March, June, and September 2025
This translates to a GBP/EUR exchange rate of 1.19 at the end of December 2024, and 1.20 at the end of March, June, and September 2025. For the most comprehensive forecast available, consider requesting the Corpay survey of forecasts from more than 40 investment banks (more info here).
While the report acknowledges the recent strength of the pound due to persistent core inflation, solid Q2 growth, and optimism surrounding the new government, it anticipates some strengthening of the euro.
Economists think the European Central Bank (ECB) will make significantly fewer interest rate cuts than the market expects, which should boost the euro.
GBP/USD Forecast
Commerzbank forecasts pronounced USD weakness due to sharper-than-expected interest rate cuts by the U.S. Federal Reserve.
Economists predict the GBP/USD rate will reach 1.33 by the end of December 2024, rise to 1.36 by the end of March 2025, further climb to 1.39 by the end of June 2025, and then fall to 1.35 by the end of September 2025, before ending at 1.33 in December 2025.