A faster economic rebound in the UK than in the Eurozone and an earlier move to less accommodative monetary policy suggests a greater upside risk for the Pound than the Euro. Analysts at Wells Fargo forecast the GBP/USD pair to rise to 1.49 and the EUR/USD pair to 1.28. They also believe the pound will perform stronger against the dollar in the short term, although the euro may catch up somewhat in the longer term as the economic recovery in the EU gathers pace.
- The European Central Bank will announce a slower pace of bond purchases from Q4 2021 at its September meeting.
- Eurozone GDP levels in Q1 were still 5.1% below the pre-pandemic peak in Q4 2019.
- UK services PMI index rose to 62.9, a record high for decades
Eurozone: recovery continues at a more sustainable pace – Wells Fargo
– The Eurozone economy should show a further strengthening of growth in the coming months. The European Central Bank will eventually follow , announcing a slower pace of bond purchases from Q4 2021 at its September meeting. – Well Fargo analysts wrote.
The level of retail sales in the Eurozone in April was only 0.3% above the first quarter average, in stark contrast to the much stronger growth seen in the UK. We also observe that the level of Eurozone GDP in Q1 was still 5.1% below the pre-pandemic peak in Q4 2019.
The situation in the euro area is improving and growth is gaining momentum. Meanwhile, the UK services PMI index rose to 62.9, a record high for decades. May’s Eurozone services PMI rose, but not by much, to 55.2, the highest level since June 2018.
– Divergent monetary policy paths have resulted in a somewhat divergent outlook for the GBP and euro. Monetary policy in the UK is becoming less accommodative, so we expect the pound to rise, with risks around our forecast tilted upwards. As for the euro, although we forecast it to strengthen, the pace of appreciation is likely to be more gradual as the ECB may be cautious in reducing monetary policy accommodativeness in the near future, it added.
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