Pound to Euro Rate 2025 Forecast Outlook: Analyst Views Roundup
The consensus forecast among investment banks is that the Pound to Euro exchange rate (GBP/EUR) will strengthen to 1.2200 at the end of the year from around 1.2050 at the end of 2024.Some investment banks expect more substantial Pound gains.
HSBC (LON:HSBA) does have reservations over the UK outlook, but its central case is that it will out-perform the Euro-Zone and this will maintain upward pressure on GBP/EUR.
It forecasts that GBP/EUR will strengthen to 1.25 at the end of 2025.
According to HSBC; “Although still plagued by numerous headwinds to growth, we think the UK is better positioned to face the current set of global challenges than the eurozone.
This leaves the UK likely to perform midway between the strong US economy and weaker eurozone economy, sending EUR-GBP to fall to 0.80 by Q3 2025.”
HSBC focussed on Euro-Zone difficulties; “Political instability now envelopes the eurozone’s two largest economies, Germany and France, preventing Berlin from addressing lost industrial competitiveness and hampering Macron’s plans to stabilise soaring Gallic debt.
To complicate things further, US President-elect Trump has threatened tariffs on imports from Europe while holding back on supporting Washington’s long-standing European defence guarantee.”
ING noted near-term Pound support; “We think this trend is primarily being driven by the BoE versus ECB story.
But warmer relations between the UK and the EU can’t hurt.
Equally, the eurozone’s fiscal straitjacket should mean the UK economy does outperform in 2025.”
HSBC also noted the potential for closer UK-EU relations; “Improved trust could strengthen investor confidence, supporting FDI flows into the UK which would provide a more stable funding base for the UK’s current account.”
There is very little in the way of dissent on the near-term view.
Danske Bank (CSE:DANSKE) commented; “GBP continues to benefit from a hawkish BoE, inflation and wage growth remaining elevated and underlying growth in the UK outperforming the Eurozone.
We think these forces will continue to weigh on the cross also in the coming quarters.”
RBC Capital Markets (RBC) considers that the UK is less exposed to global trade threats; “Externally, we think the UK is less vulnerable than some other economies, such as the Euro area, to tariff risks under Trump’s presidency.
If the potential tariffs are focused on goods imports, then the UK should be more insulated due to services making up around two-thirds of its exports to the US.”
Beyond the near term, however, several investment banks have greater reservations over expecting further Pound gains.
According to RBC a lot of ‘bad news’ and Pound ‘good news’ has already been priced in.
It added that traders are already holding substantial long Pound positions, leaving it vulnerable to a correction while it also considers that the Pound is overvalued at current levels.
RBC added; “The hurdle is low for GBP weakness if there are any concerns about UK’s growth outlook or fiscal dynamics, and/or there is a risk-off shock.”
Bank of England policies will be a key element during the year.
At this stage, markets are only pricing in two Bank of England rate cuts for 2025.
If this pricing is sustained, the Pound will maintain a strong yield advantage.