April 27, 2025 – Written by Tim Boyer

STORY LINK Pound to Euro Week Ahead Forecast: Overvalued Sterling “Vulnerable to Correction”

Foreign exchange analysts at Danske Bank now forecast the Pound Sterling (GBP) will slide to 1.1365 against the Euro (EUR) on a 12-month view amid a persistent slide in global risk appetite.

In contrast, Credit Agricole, expects Pound to Euro (GBP/EUR) exchange rate gains to 1.2050 by the end of 2025 with the Euro overvalued.

During the week, GBP/EUR was able to secure a tentative net gain to 2-week highs near 1.1730. Risk conditions were more benign during the week which helped underpin Sterling.

According to Credit Agricole; “we note that our estimates of short-term fair value that are based on FX drivers like relative rate spreads and risk aversion suggest that the GBP is looking quite undervalued vs the EUR.”

It added; “the very overvalued EUR/GBP could remain vulnerable to a correction lower in the near term.”

ING commented that there will be scope for further GBP/EUR gains if it can break above 1.1730.

The Pound will tend to gain support if there is a further improvement in confidence, but any renewed setback would put the currency under renewed pressure.

Danske Bank commented; “The key risk to seeing EUR/GBP trade substantially higher than our forecast is a sharp sell-off in global risk and/or renewed focus on the UK’s fragile fiscal position.”

MUFG noted the importance of safe-haven demand and noted; “the recent divergence in TWI performances for EUR and GBP with EUR supported by safe-haven demand that GBP is unlikely to see.”

Danske expanded its analysis; “While we see domestic factors and the relative growth outlook between the UK and the euro area as GBP positives, we think the global investment environment will be in the driver’s seat for EUR/GBP in the coming months.”

It added; “An investment environment characterised by elevated uncertainty, widening credit spreads and a positive correlation to a USD negative environment, in our view, favours a weaker GBP. The UK runs a large current-account deficit, which makes GBP vulnerable when capital inflows fade.”

As far as monetary policy is concerned, there are very strong expectations that the Bank of England will cut interest rates by a further 25 basis points to 4.25%.

In comments this week, Governor Bailey expressed concerns over the global growth outlook due to trade tariffs, but there are also inflation concerns which will make policy setting notably difficult.

Caution would help underpin the Pound on yield grounds.

MUFG commented; “While a 25bp cut at the next MPC meeting on 8th May is highly likely and fully priced, further cuts beyond could quickly be questioned if supply-side issue create inflationary pressures in the UK. Much stickier wage growth could force the BoE into a more cautious approach to rate cuts given fiscal uncertainties and Gilt market concerns.”

There has been dovish commentary from ECB officials with Governing Council member Rehn, for example, stating that the ECB should not rule out a larger 50bp rate cut if the conditions supported a bigger move.

There are expectations that there will be a further rate cut in June.

MUFG added; “Disinflation and the demand shock are the focus underlining rate cut prospects.”

Credit Agricole noted that Euro gains will curb Euro-Zone growth and put downward pressure on inflation.

It added; we believe a continuation of the recent EUR strength could be self-defeating as it would increase the risk of a more dovish ECB pivot.

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April 27, 2025 – Written by David Woodsmith

STORY LINK Pound to Dollar Forecast: RSI Firmly Bullish, Resistance Closer to 1.34

In view of sharp dollar losses, most investment banks have dropped their forecasts for sustained Pound to Dollar exchange rate (GBP/USD) losses.

Danske Bank and UBS both now have 12-month GBP/USD forecasts of 1.39.

Standard Chartered is more cautious and has a 12-month GBP/USD forecast of 1.34.

After testing 3-year highs around 1.3430, GBP/USD consolidated just above 1.3300 as the dollar recovered some ground.

President Trump rowed back on his threat to dismiss Fed Chair Powell which triggered a Wall Street rebound and dollar recovery.

The Pound was underpinned by steady gains in the FTSE 100 index as well as stronger than expected retail sales data.

Confidence in US assets and currency will remain crucial for global markets with trade and tariff developments inevitably playing a big part.

The Administration remains upbeat over the outlook for trade deals for countries such as Japan, but any positive headlines may not be backed up with substance.

US-China relations remain very difficult despite China’s move to cut tariffs on some key imports.

Markets will continue to track shipping data and evidence on the impact of tariffs.

ABN Amro expects there will be long-term dollar damage; “In trying to bring back manufacturing, and reducing its dependence on China, the US is destroying its reputation and risks losing its dominance of the financial system, perhaps even to China. Tariffs can be unwound quickly, but regaining the world’s trust will take much longer.”

According to Danske the dollar is still vulnerable; “In the near term, the brewing confidence crisis in US assets and mounting US recession concerns are likely to remain dominant market themes, offering continued support for the cross.”

Danske added; “Longer term, we believe the evolving structural backdrop — including the seismic shift in US politics, the ongoing trade war, and signs of capital rotation out of US assets — will leave the USD facing the greatest relative downside.”

Standard Chartered commented; “We now see downside risks primarily driven by renewed tariff noise. Reduced US policy uncertainty or a decisively hawkish turn in Fed policy is an upside risk for the USD.”

There are strong expectations that the Bank of England will cut rates at the May policy meeting with most banks expecting a further two cuts over the second half of the year.

UBS expects the Pound can hold its own in global markets and take advantage of a soft dollar; “While we do not believe investors are yet considering the GBP a safe haven, we acknowledge its high correlation to the EUR during these uncertain times. Its liquidity and carry profile do seem attractive to global investors. Both should remain in place for the time being, barring any yield blow ups.

The Pound could benefit if the Federal Reserve engages in sharp interest rate cuts.

According to Standard Chartered; “expectations of rising near-term inflation should keep the Fed cautious in its approach to interest rate adjustments, supporting the USD in the near term. However, trade policy uncertainty may hinder US economic growth and lead to fund rotations out of the US, potentially leading to a softer dollar over a 12-month horizon.”

The UK fiscal 2024/25 budget deficit was £151.9bn, £14.6 billion more than forecast by the Office for Budget Responsibility (OBR).

Commerzbank is not confident in the UK outlook; “the UK’s recent growth has been almost entirely based on the public sector. So, not a good sign for the pound: less growth and more rate cuts at the same time.”

RBC Capital Markets added; “less than a month after the Spring Statement it already looks likely that the Chancellor will have to make further policy changes at the Budget in the Autumn.”

Nevertheless, it considers that the structural process of updated forecasts overstates potential vulnerability.

The bank added; “For sure, it’s not that the UK has a great story to tell, it’s just that its story isn’t a significantly worse one than many of its peers.”

UBS expects global developments will dominate for now; “The UK data calendar is relatively light next week suggesting that the near-term outlook for the GBP could remain a function of global drivers like the resilience of market risk sentiment and the evolution of the USD across the board.”

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TAGS: Currency Predictions Pound Dollar Forecasts