Currency analysts at ING expect interest rate cuts will undermine the Pound with the Pound to Euro (GBP/EUR) exchange rate weakening to 1.1365 on a 6-month view.
GBP/EUR failed to break above the key 1.1765 level in February and March while rallies since then have fallen short of this level.
ING considers that this resistance will continue to hold with the pair dominated by downside risks and uncertainty surrounds the timing of losses rather than direction.
ING expects that the Pound will weaken as a decline in services-sector inflation triggers expectations of Bank of England (BoE) interest rate cuts.
The bank sees scope for a series of BoE rate cuts before the end of 2024 which will be pivotal in undermining the Pound.
From a longer-term perspective, ING expects the low point for ECB interest rates will be above 2.0% and provide some Euro protection.
The bank does not expect that the UK election will undermine the Pound with a Labour victory priced in given a substantial and consistent opinion-poll lead.
It does note that overall currency volatility is likely to increase around the November US Presidential election and this will have implications for the Pound, especially if there are substantial moves in equities.
Overall, ING expects that GBP/EUR will stabilise around 1.1365 on a 12-month view.