• GBP/EUR likely to benefit from prospects of Bank of England hike in 2016

    Source: FxWire Pro - Commentary / 24 Sep 2015 02:24:00   Eastern Standard Time

    Most of the past month's movement in GBP/EUR occurred in the wake of China's currency devaluation in mid-August, with the pound plummeting 5 cents in as many days, to just above 1.35. The sharp fall was mostly due to safe-haven buying of euros and a knee-jerk scaling back in UK rate rise expectations. 

    Since then, it has rebounded back above 1.38. The ECB has sounded a more dovish note, holding out the possibility of an increase in QE, while the balance of recent data has been slightly more supportive for the pound (particularly the latest labour market figures). 

    "Looking ahead if, as expected, China concerns gradually dissipate, GBP/EUR should benefit from a renewed focus on the relative resilience of the UK domestic economy, and the prospect of a rise in UK interest rates in early 2016", says Lloyds Bank. 

    Nevertheless, there is positive view on the euro over the medium term. The euro area is more likely than the UK to post a positive growth surprise in 2016. 

    "GBP volatility is also likely to rise as the EU referendum approaches. 1.46 is targetted by year end and 1.24 by end 2016", added Lloyds Bank.