Pound to Euro Exchange Rate Forecasts on Three, Six and Twelve Month Horizons Following BoE Stimulus Blitz
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Pound Sterling was the worst performing currency in the G10 sphere for the week ending 6th of August, and analysts say further declines from here are to be expected.
That GBP was the worst performing currency in the G10 complex over the week past thanks to the Bank of England monetary policy event of Thursday the 4th of August.
The underperformance came as an interest rate cut and a whopping increase to the Quantitative Easing programme were announced.
Analysts are in agreement that the Bank has taken a bold step in trying to get ahead of the curve and counter any economic weakness emnating from the Brexit vote.
The increase in supply of currency to the economy that the policy changes entail should have weakened Sterling notably.
Yet, the GBP/EUR is still above the 2016 lows and remains within the broader July-August ranges, suggesting that the event was not a knock-out blow for the UK currency:
The Pound to Dollar exchange rate trades at 1.3070, July’s low is at 1.2799, while the best is at 1.3481.
The Pound to Euro exchange rate trades at 1.1792, July’s low is at 1.1558, while the best is at 1.2120.
That we are well within recent ranges is understandable as markets are left with a quandary: Do they sell the GBP on expectations of an increased supply of money into the economy, whereby the unit value of Sterling is devalued, or, do they buy GBP on the basis that the Bank has initiated enough stimulus to save the economy from recession?
Indeed, “the extent of the MPC’s collective pessimism about the economic outlook appears relatively limited, at least after the supportive measures introduced today,” note Lloyds Bank Commercial in their initial response to the August measures.
Importantly, the GDP forecasts released by the Bank confirm no UK recession is expected.
GDP growth throughout 2016 to 2018, on the MPC’s central estimates, is expected to be above post-referendum consensus expectations, and close to the recent optimistic forecasts of the IMF and NIESR, suggesting only a modest downturn.
Nevertheless, the prospect for surprises, either to the upside or downside, are notable with the Inflation Report’s GDP growth fancharts widening:
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