GBP/EUR forecast: Will the pound rise against the euro in 2023?
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The British pound (GBP) started 2023 on a strong foot against the euro (EUR), recovering from a two-month low of €1.12 to €1.14, as of 21 March, amid reports of strong UK labour market and upbeat corporate earnings data. However, the Bank of England (BoE) raised interest rates (Bank Rate) by 0.5 percentage points to 4% on 2 February.
EUR/GBP live exchange rate
With both UK and eurozone economies under pressure from inflation, rate hikes and the energy crisis exacerbated by the Russia-Ukraine war, what does the outlook look like for the GBP/EUR foreign exchange (forex) rate?
In this article, we look at the latest GBP/EUR predictions from analysts, and what factors will influence the exchange rate in the future.
What drives the GBP/EUR pair?
The GBP/EUR pair represents how many euros – the quote currency – are needed to buy one British pound – the base currency.
The pair is one of the most frequently traded on the FX markets. Sterling is the former global reserve currency and one of the strongest in the world, while the euro is the second most traded currency in the world after the US dollar (USD). Both the GBP and EUR represent major global financial and trading centres.
Macroeconomic indicators, including GDP, inflation, interest rates, services and manufacturing activity and unemployment, market sentiment and consumer confidence, all drive the currency markets, as they affect a country’s attractiveness to investors and, in turn, demand for its currency. These economic readings are key in shaping a GBP/EUR forecast.
Market sentiment is a key driver for the GBP/EUR pair. The uncertainty surrounding negotiations between the UK and the EU over the UK’s exit from the bloc have weighed on the value of sterling since the 2016 referendum.
More recently, concerns over the impact of the Russia-Ukraine war on inflation in the UK and the eurozone have influenced the direction of the exchange rate.
What is your sentiment on EUR/GBP?
GBP/EUR trend reflects economic volatility
After falling in March 2020 from 1.20 to 1.08 on concerns about the impact of the Covid-19 pandemic on the UK economy, the GBP/EUR pair has remained volatile. The rate quickly moved up to 1.1495 in April 2020, but then trended lower over the summer to return to the 1.08 level in September 2020.
The pair then began to trend higher as the introduction of Covid-19 vaccines raised hopes that the UK economy would start to recover from lockdowns.
The upward trend continued into 2021, with the pair reaching 1.1761 in late March. The pair dipped to 1.1474 in April 2021 but then moved into a trading range between 1.16 and 1.18 for the rest of the year.
The GBP/EUR pair moved above 1.19 in January 2022, after the Bank of England (BoE) kicked off a series of interest rate hikes in December 2021 with a 15-basis point increase to 0.25%.
The GBP/EUR pair briefly moved back above 1.21 in late February 2022 as traders weighed the impact of the Russian invasion of Ukraine on the eurozone economy, anticipating a stronger impact than on the UK economy. But the pair began to slide in April and dropped to 1.16 on 26 June 2022.
The pair struggled through high volatility throughout August and September 2022, dropping to an intraday low of €1.08 on 26 September following a disastrous mini-budget of the Liz Truss government.
Since then the British pound recovered some losses, and have been trading sideways between €1.12 and €1.14 levels, as of 21 March 2023.
Strong UK job market, easing inflation
The GBP/EUR gained 0.35% between 1 and 21 March. From November 2022 to January 2023, UK employment rate was estimated at 75.7%, 0.1 percentage points higher than the previous three-month period. The increase in employment over the latest three-month period was driven by part-time employees and self-employed workers, according to data from the Office of National Statistics.
UK corporate and jobs data showing pay-rolled employees increased by 28,000 between September to November 2022 and regular pay rising by 6.4% in November. Rabobank’s senior FX strategist Jane Foley commented on the day:
Meanwhile, the UK’s inflation is still a concern. The consumer price index (CPI) rose by 10.1% in the 12 months to January 2023, down from 10.5% in December 2022.
The ONS said:
The BoE has already brought the rate to 3.5% (compared to ECB’s 2.5%), as of January 2023. Rabobank’s Foley pointed out that BoE expects inflation to ease only in the middle of 2023, due to lower rises of energy prices, improvement of supply-side issues and slowing demand. She added:
The ECB is widely expected to continue its hawkish monetary stance in 2023. Fitch Ratings forecast the bank to raise its main refinancing rate to 4% by June 2023.
GBP/EUR forecast for 2023 and beyond
In their latest pound to euro forecast issued on 16 January 2023, Citibank was bullish on GBP/USD, predicting the British pound rise to $1.17 in the next three months, accelerating to $1.25 in 6-12 months, and trading at $1.34 in the long-term. The US investment bank’s forecast for EUR/USD was less upbeat, seeing the currency pair trading at $1.04 in three months, $1.15 in 6-12 months, and keeping flat in the long-term.
While Citibnank didn’t provide a direct GBP/EUR forecast, we can calculate the GBP/EUR forecast for 2023.
The cross rate from the forecasts above concluding that the bank expected the rate to trade at €1.125 in three months, slumping to €1.08 in the next year, yet recovering to €1.165 in the long term.
Meanwhile, Rabobank’s Jane Foley expected EUR/GBP to edge to 0.9 in the next six months, which would amount to the GBP/EUR forecast of €1.11.
“Although the UK economy may now be able to skirt technical recession in Q4, the cost of living crisis is still in full swing, and recession is still almost inevitable,” the analyst said.
At the time of writing (20 January 2023), the GBP/EUR forecast from TradingEconomics expected the exchange rate to trade at 1.12452 by the end of the first quarter of 2023, and at 1.11088 in early 2024, based on global macro models projections and analysts expectations.
The GBP/EUR forecast for 2023 from algorithm-based forecaster WalletInvestor was bullish on the long-term outlook, predicting that the pair could trade at 1.143 in early 2024, and at 1.195 in five years’ time. The site’s GBP/EUR forecast for 2025 saw the pair trading at 1.148 in January of that year.
Analysts have not issued a GBP/EUR forecast for 2030, yet WalletInvestor went as far as 2028, predicting the pair to start that year at 1.187.
Final thoughts
When evaluating any pound to euro forecast, it’s important to keep in mind that forex markets are highly volatile, making it difficult to make accurate long-term estimates. Hence analysts’ and algorithm-based predictions are often wrong. We recommend that you always do your own research. Look at the latest news, a wide range of commentary, technical and fundamental analysis before trading.
Keep in mind that past performance is no guarantee of future returns, and never trade more money than you can afford to lose.
FAQs
Why has GBP/EUR been rising in 2023?
The GBP/EUR currency pair started 2023 on a strong foot amid reports of strong UK labour market and upbeat corporate earnings data, which may mean more aggressive interest rate hikes by the Bank of England (BoE).
Will GBP/EUR go up or down?
Analysts’ views on GBP/EUR vary. On 17 January 2023 Rabobank’s Jane Foley expected EUR/GBP to edge to 0.9 in the next six months, which would amount to the GBP/EUR forecast of €1.11. Meanwhile, the GBP/EUR forecast from TradingEconomics expected the exchange rate to trade at 1.12452 by the end of the first quarter of 2023, and at 1.11088 in early 2024, based on global macro models projections and analysts expectations. Note that analysts’ and algorithm-based forecasts can be wrong.
When is the best time to trade GBP/EUR
The busiest time for the GBP/EUR market is typically during European trading hours between 07:00-16:00 GMT. Releases of major macroeconomic data and monetary policy statements tend to drive volatility on currency markets, increasing liquidity and creating opportunities for traders to profit. However, you should keep in mind that high volatility increases risks of losses.
Is GBP/EUR a buy, sell or hold?
How you should trade the GBP/EUR pair is a personal decision you should make based on your risk tolerance, investing strategy and portfolio composition, after researching the market to understand the latest trends, news and analysis. Keep in mind that past performance is no guarantee of future returns, and never trade money you cannot afford to lose.
