The euro has been little changed to slightly firmer against the pound over the past month. Having tested its May low just above 1.3350 in mid-October, EUR/GBP subsequently bounced back to around 1.36.
In the absence of safehaven flows due to concerns over China, the euro is expected to come under renewed pressure over the coming months. The potential for more ECB QE and a shift in the market's expectation of the timing of the first U.K. rate rise should weigh on the currency pair over the coming months, states Lloyds bank.
Nevertheless, over the medium term, the euro is expected to stage a solid recovery. Not least, potential EU referendum risks, fiscal austerity and the UK's sizable current account deficit leave sterling vulnerable. Equally, wit is believed there is scope for a relatively larger upside surprise in euro area growth versus the UK next year. Overall, GBP/EUR is likely to trade up to 1.42 by end 2015, but to fall back to 1.24 by end 2016, foresees Lloyds Bank.
