April 17, 2025 – Written by Frank Davies

STORY LINK Pound Sterling to Euro Forecast: ECB Upside, “EUR Looking Overvalued vs USD, GBP, JPY”

After finding support close to 1.1600, the Pound to Euro exchange rate strengthened to just above 1.1660 GBPEUR after the ECB expressed concerns surrounding the Euro-Zone growth outlook, although the Euro pulled away from initial lows.

Commerzbank commented; “given the factors that argue against a hawkish surprise, the risks are likely to be skewed towards a weaker euro.”

ING expects solid GBP/EUR exchange rate selling on any gains to 1.1765.

The ECB cut interest rates by 25 basis points at the latest policy meeting, in line with consensus forecasts, with the deposit rate cut to 2.25%

The central bank expressed greater reservations surrounding the outlook.

According to the statement; “The euro area economy has been building up some resilience against global shocks, but the outlook for growth has deteriorated owing to rising trade tensions. Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions.”

Bank President Lagarde stated that the economic outlook is clouded by exceptional uncertainty and that downside risks to the growth outlook have increased.

Markets are now expecting three further rate cuts this year which curbed Euro support.

Credit Agricole commented; “the ECB could further take into account the prospect for aggressive fiscal stimulus that could boost the bank’s long-term growth outlook for the Eurozone. While this could keep the EUR supported in the near term, we also note that our short-term fair value models are signalling that the EUR is looking quite overvalued vs the USD, GBP and JPY.”

UBS also notes the potential for a Euro correction; “markets have already priced in part of the fiscal boost over the last six weeks, so we see more downside than upside risk in next week’s sentiment numbers. After the euro’s recent rally, we expect next week’s data to prompt a consolidation rather than a renewed push higher.”

There were no significant UK developments during the day.

SocGen head of corporate research FX and rates Kenneth Broux commented on the outlook; “The backdrop for the UK and for sterling really is not too bad. As long as we don’t have another leg of risk-off and another spike in gilt yields, sterling should continue to do quite well.”

UBS considers that GBP/EUR fundamentals are mixed; “With its export mix vastly focused on services, the UK should fare better than others in the new goods-tariffed world. However, the GBP’s high-beta nature and trade dependency on the Eurozone would still suffer in a trade war scenario.”

It added; “Furthermore, the UK does not have the benefit of a fiscal bazooka plan like Germany, and we do not believe it will have the means to do so anytime soon.”

The bank is still broadly positive on the Pound; “Nevertheless, we still believe that GBP positives can shine through in the short run.”

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TAGS: Currency Predictions Pound Euro Forecasts