EUR/GBP Monthly Fundamental Forecast – February 2016

Outlook and Recommendation

The EUR/GBP closed out January at 0.7605 with a decline close to 9% on the month as the pound just had no support. n recent days, New York-based Goldman Sachs adjusted its forecasts for the euro’s value compared to the dollar, predicting on January 22 it will cost less than a dollar to buy a euro by the end of this year. In Europe, German banking giant Commerzbank predicted the two currencies would have the same value by the end of the year.

Analyst Petr Karata, of ING Bank, in a report, this morning, entitled: “It’s much more difficult to generate a weaker Euro”, suggests it will get harder for the ECB to engineer a weaker euro, removing a major risk factor for more euro-downside:

“It is likely to get harder and harder for the ECB to generate weaker EUR given that (a) its toolkit is narrowing and (b) some factors behind the stronger trade weighted EUR look to be beyond the ECB’s influence.”

The outperformance of the GBP is based on the assumption that the Bank of England will raise interest rates in response to the economic growth story while analysts tell us the Eurozone will see negative interest rates.

The IMF Eurozone growth is projected to strengthen to 1 percent in 2014 and 1.4 percent in 2015, but the recovery will be uneven. Sterling suffered a soft finish to 2015 as markets pushed back their expectations for the first interest rate hike at the Bank of England into the end of 2016. And now until 2017.

January data showed UK inflation holding steady taking the pressure off the BoE to rush into an interest rate rise. The improvement in expendable income has been reflected in some strong retail sales data, significant in that consumers are a key driver of the UK economy.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

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