Nomura Predicts Euro Strength Against Pound, Shifts Expected by Year-End

  • omura's economists forecast a rise in the EUR/GBP exchange rate, potentially reaching 0.88 to 0.90 by the end of the year.
  • The market's current anticipation of 121 basis points of Bank of England policy rate hikes by year-end contrasts with Nomura's prediction of only 75 basis points.
  • Considering the possibility of UK CPI underperforming in the latter half of the year and the overpriced rate hikes, the EUR/GBP is expected to gradually increase.

Currency experts at Nomura, a leading financial institution, project a steady ascent for the EUR/GBP exchange rate, potentially reaching a value of around 0.88 or even as high as 0.90 by the close of 2023. This forecast carries significant implications not only for Europe and the UK but also for South African businesses and investors involved in the international currency market.

In recent times, market behaviour has transitioned from trading primarily on rate spreads, which would imply a fortifying of the British Pound, to a focus more centred on growth expectations. Recent disappointments in global survey outcomes have resulted in underperformance of high-beta currencies, ones that are highly sensitive to market movements.

The present market anticipation factors in 121 basis points of policy rate hikes by the Bank of England (BoE) by the end of this year. This expectation sharply contrasts with Nomura’s prediction of 75 basis points.

Nomura’s advanced indicators suggest that the UK’s Consumer Price Index (CPI), a measure of inflation and economic health, may defy expectations by falling in the latter half of the year. Lower CPI often indicates decreased inflation and can influence economic policy decisions.

Considering the potential overestimation of rate hikes by the market and the unexpected downturn in UK CPI, Nomura firmly believes in a gradual upward movement for the EUR/GBP exchange rate. This slow but steady rise could see the rate hit levels around 0.88 or even 0.90 by the year’s end.

For South Africa, a strong Euro against the British Pound could influence trade dynamics, particularly for businesses importing European goods or services. Investors, on the other hand, may seek to capitalise on the projected currency shifts. It is important, however, for stakeholders to remain aware of these potential changes and to make informed decisions in their best economic interest.

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