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.
The Pound to Euro exchange rate (GBP/EUR) has been volatile, influenced by weak UK economic data, German political challenges, and global currency shifts.Analysts see potential short-term Pound strength driven by UK fiscal policies and Euro weakness, but expect longer-term pressure on Sterling due to underlying UK economic struggles.
The Pound to Euro (GBP/EUR) exchange rate spiked to 31-month highs on November 11th before a retreat to 1.1965 after disappointing UK GDP data.
Societe Generale (EPA:SOGN) (SocGen) sees scope for short-term gains to 1.2200 on German woes before a retreat to 1.1765 at the end of next year as weak UK fundamentals return to dominance.
SocGen expects that the Pound will gain further near-term support from the budget boost to fiscal spending, especially as it will encourage the Bank of England to maintain a cautious stance towards cutting interest rates.
Global developments will also be important in the near term.
SocGen sees scope for a fresh dollar spike strong in the near term as markets price in a larger Trump premium.
A dollar spike would tend to undermine the Euro in global markets and help underpin GBP/EUR.
The bank, however, notes that the dollar peaked before the end of 2016 when Trump won the first time around and it sees a similar risk this time.
Overall, it expects dollar gains will not be sustainable.
SocGen still expects that German political difficulties will hamper the Euro in the short term, but the bank is wary over the longer-term UK fundamentals which will eventually drag the Pound lower.
This content was originally published on ExchangeRates.org.uk