• GBP/EUR likely to drift towards 1.24 by mid-2017

    Source: FxWire Pro - Commentary / 14 Sep 2016 08:42:12   Eastern Standard Time

    Over the last month, the GBP/EUR currency pair has moved significantly higher, momentarily rising just shy of 1.20 before settling above 1.18, after hitting a year-to-date low below 1.15 in mid-August. The movement in the currency pair has been underpinned by a surprising string of positive U.K. data and a perceived fading in the uncertainty around the domestic outlook, said Lloyds Bank in a research note.

    In the meantime, rising expectations surrounding the possibility of additional easing by the European Central Bank have also been instrumental to the currency pair. While ECB president Mario Draghi was cautious regarding the prospect of further monetary easing during the recent ECB meeting, with euro area’s inflation forecast likely to remain lower than the target rate of 2 percent in the forecast horizon, the European Central Bank is still expected to extend the quantitative easing program in the months ahead, stated Lloyds Bank.

    Moreover, the prospect of political tension in Europe, given the upcoming elections in 2016, implies that the euro is vulnerable. The strong possibility of extending the QE program by the ECB implies that the central bank’s balance sheet would continue to rise at a quicker rate than that of the Bank of England.

    “On a relative basis, this argues for higher GBP/EUR and we expect GBP/EUR to drift towards 1.24 by mid-2017”, added Lloyds Bank.