ExchangeRates.org.uk - The Pound to Euro exchange rate (GBP/EUR) traded close to 32-month highs just below the 1.2100 level this week. Wells Fargo (NYSE:WFC) expects that dollar strength will dominate during 2025 with the Euro to Dollar (EUR/USD) exchange rate sliding below parity.
It expects Euro weakness will drive GBP/EUR gains to 1.2540 by the end of 2025 which would be the strongest level since 2016.
Wells Fargo considers that weakness in the Euro-Zone will be exacerbated by the imposition of trade tariffs on the Euro area by the Trump Administration.
It considers that the Euro is one of the currencies likely to under-perform next year.
In this environment, it expects that the ECB will cut interest rates faster and further than expected previously.
It expects that the key Euro rate will be slashed to 1.75% at the end of 2025.
In contrast, it expects that the Bank of England will maintain a relatively cautious stance with UK rates at 3.75% by the end of next year.
Wells Fargo expects that widening yield spreads will boost the Pound.
Sterling gains could be limited by a wider deterioration in risk conditions if the US tariff threat damages confidence in the global economy.
The bank also expects a generally strong dollar environment which will tend to hurt the Euro more than Sterling.Given these positive factors, it forecasts that GBP/EUR will strengthen to 1.2350 on a 6-month view.
Danske Bank (CSE:DANSKE) expects that interest rate developments will remain crucial for short-term move across currency markets.
As far as the Bank of England (BoE) is concerned, it expects the cautious tone to continue in the short term, especially with underlying reservations over inflation trends.
Danske expected that the next rate cut will be delayed until February.
The bank expected the ECB to resist a large rate cut in December, but does expect that there will be rate cuts at every meeting until June and over yield spreads will move against the Euro.
Danske does note that the UK runs a substantial current account deficit which will maintain the risk of a Pound sell-off.
It also expects that the BoE will eventually turn more dovish which will cap Pound gains with a limited GBP/EUR retreat to 1.22 on a 12-month view.
This content was originally published on ExchangeRates.org.uk