Gbpeur Forecast Mufg

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Gbpeur Forecast Mufg

GBP/EUR Will be Near 1.1240 In 12 Months

According to MUFG, the GBP/EUR pair will be near 1.1240 in 12 months. This forecast comes at a time when GBP/EUR is already trading at multi-month highs.

So, what will push the GBP/EUR lower? MUFG thinks the interest rate difference between the two countries and the energy prices will be the key driving forces. The political developments are also likely to push GBP/EUR higher.

BoE To Hike Rates Two More Times

MUFG thinks high yields will not be enough to support the Pound. As a result, the path of least resistance for the GBP/EUR will be downward. The 12-month target for the GBP/EUR is set at 1.240 with an even chance of touching 1.100 if the selling pressure intensifies.

If we look at the BoE, it is in a very tough situation now with rising inflation. The energy prices, in particular, have pushed inflation higher and are likely to stay higher.

In a situation like this, the only choice left for the Bank of England is to raise the interest rates. That's why MUFG is now forecasting at least 2 more rate hikes from the BoE in 2026.

But the higher rates will only support the Pound in the short-term. MUFG added that higher rates will actually damage the economy and hurt the overall sentiment.

And if the BoE doesn't go ahead with the rate hikes, it will lead to even higher inflation. So, it appears that BoE is at a crossroads and every decision has its own consequences.

To make matters worse, the political instability in the UK shows no signs of ending. So, that's also affecting the support for the GBP.

The bank concluded that a combination of political and economic fears will trigger multiple sell-offs. With all things considered, the GBP is set to be a net loser against the EUR.

It's not like the EUR will be unaffected by high energy prices and geopolitical tension. It's just that the overall situation of the Eurozone will be a little better than the UK, and that will send the GBP/EUR lower.

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