GBP/EUR likely to gradually appreciate towards 1.18 by end-2017, says Lloyds Bank

Since the start of the year, GBP/EUR has been limited to a range of 1.13-1.20. For both respective legs of the pair, political uncertainty is likely to be the key risk in the coming months. On the EUR side, the German, possible Italian and most importantly French elections will be in focus for the market.

For the GBP, the progression of negotiations with Europe around the UK’s exit from the bloc could be influential in determining how the currency performs. The difficulty in quantifying these risks and significant degree of uncertainty around these events is well reflected among analysts, who currently show a high level of divergence in their expectations for GBP/EUR at year-end.

In terms of monetary policy, the Bank of England (BoE) and European Central Bank (ECB) look set to maintain their current stances through the remainder of 2017, although recent hints from both central banks suggest tightening could occur ahead of the current market implied expectations.

"Our base case is for GBP/EUR to gradually appreciate through the year towards 1.18 at end-2017 and remain relatively range bound throughout 2018, closing at 1.20. However, the nature and timing of this year’s risks leaves the pair vulnerable to significant bouts of volatility," Lloyds Bank commented in its latest research report.