The GBP to EUR exchange rate has shown resilience in recent weeks, currently positioned at 1.1562, which is close to its three-month average and within a stable trading range of 2.8% from 1.1424 to 1.1743. Analysts attribute the pound's strength largely to the expected divergence in monetary policy between the Bank of England (BoE) and other central banks. With markets speculating that the BoE will maintain its policy through the remainder of the year amid persistent high inflation, GBP may continue to offer higher interest rate returns compared to many other currencies.
Recent forecasts from HSBC and Deutsche Bank suggest that expectations for BoE rate cuts have been pushed back, with HSBC now anticipating steady rates until at least April 2026, while Deutsche Bank expects the potential for a cut in December. This prolonged hold on rates could bolster the pound in the near term, although a cooling labor market, highlighted in the latest jobs report, might dampen sterling sentiment.
On the other hand, the euro has encountered challenges, particularly following Fitch's downgrade of France's credit rating, which added to the downward pressure on the currency. Despite this, the euro’s losses have been restrained by its inverse relationships, notably with the US dollar. Market participants are closely watching indicators like Germany's ZEW economic sentiment index, where any further deterioration could adversely affect the euro.
The eurozone's broader economic context, affected by ongoing geopolitical tensions and economic recovery from the pandemic, will likely remain a key consideration. The European Central Bank (ECB) has indicated no immediate need for rate cuts, which may provide some stability for the euro, but concerns about inflation and competitiveness from its appreciation against the dollar persist.
Crude oil prices, currently at 67.44 USD, have remained volatile, trading 1.9% below their three-month average with fluctuations up to 20.4%. Given the euro's susceptibility to oil price movements and overall economic sentiment, trends in oil could indirectly influence the EUR's performance against the GBP, especially as global recovery impacts energy demand.
In summary, the GBP may retain a favorable position against the EUR in the short term, particularly with anticipated steady interest rates and positive sentiment surrounding the BoE's cautious monetary policy. However, the eurozone’s economic pulse, influenced by credit ratings and geopolitical factors, will be crucial for determining future trends in the GBP to EUR exchange rate.
