Sterling to Euro forecast for June and July 2010

Good morning. The pound remained fairly range bound against the Euro yesterday, sitting just below €1.20. Rates are still at around the same level this morning. I've had many questions recently regarding where GBP/EUR rates may go during the next few months, so today we'll look at that. We'll also look at a video of our recent appearance on CNBC discussing the currency markets. First, the usual snapshot of pound exchange rates as at 08:30am:





(If you can't view the above video, click here to watch it on YouTube.)

Sterling to Euro Forecast June / July 2010

Well rates at the moment are close to the highest since around October 2008, so it’s looking pretty good at the moment for those needing to buy Euros. So why is it good, and will it last?

The reason it’s high is nothing to do with Sterling strength – it’s a combination 2 things:

First, the Euro weakness following all the sovereign debt problems of Greece and Spain – this has weakened the Euro making it cheaper to purchase. Second, the failed takeover of AIG by the Pru this week means that Prudential has had to convert billions of dollars back into Sterling – the corporate demand for the pound helped push levels through €1.20.

It’s impossible to predict where rates will go, but we think the Euro weakness is already priced in to the rates, and the short term corporate demand for the pound is over. A little over 2 weeks ago the rate was in the €1.13's. At some point the EU crisis will settle down and when it does, rates may well fall back away.

The other thing to consider is the BP issue – they’re a huge UK company and the oil spill problems could cause further weakness in Sterling.

So, of course it may continue creeping up, but given we’re close to the best levels for ages, you probably have more to lose that you have to gain. If it were me I’d probably want to secure a rate sooner rather than later while it’s so good.

Some analysts are predicting €1.25 by year end, but for the short to medium term I think the pound will remain under pressure, and I wouldn’t be surprised to see it snap back to where we were a few weeks ago.

Next week we'll look at both pound to Euro and pound to US dollar, and as usual on Monday we'll have a look at all the data that's going to be released that may affect exchange rates.

Have a great weekend.

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