BNP Paribas 2023-2024 Exchange Rate Forecasts
Euro Can Secure Capital Inflows
The bank maintains a broadly constructive stance towards the Euro.
It expects that the ECB rate hikes and quantitative tightening will encourage foreign inflows and domestic repatriation.
Although BNP expects that energy prices will strengthen, it does not expect a return to 2021 levels.
Overall, the bank expects gradual EUR/USD gains over the medium term.
Pound Vulnerable on Weak UK Fundamentals
BNP expects that the Bank of England (BoE) will have to increase interest rates further, but does not consider that market expectations of rate hikes to 5.75% will be met which will sap currency support.
It also considers that the BoE is in a no-win situation.
Even if the central bank continues to raise rates, BNP also expects that market confidence in Sterling would suffer to the perception of a long-term inflation problem.
It adds; “Both of these developments would be GBP-negative, in our view.”
The bank also maintains a negative stance on UK fundamentals. It adds; “We expect GBP to remain structurally weak due to UK growth underperforming its peers, remaining below-trend, and its persistent current-account deficit that requires foreign funding.”
Overall, BNP expects that the Euro to Pound (EUR/GBP) exchange rate will trade close to 0.88 during the forecast period.
Euro Can Secure Capital Inflows
The bank maintains a broadly constructive stance towards the Euro.
It expects that the ECB rate hikes and quantitative tightening will encourage foreign inflows and domestic repatriation.
Although BNP expects that energy prices will strengthen, it does not expect a return to 2021 levels.
Overall, the bank expects gradual EUR/USD gains over the medium term.
Pound Vulnerable on Weak UK Fundamentals
BNP expects that the Bank of England (BoE) will have to increase interest rates further, but does not consider that market expectations of rate hikes to 5.75% will be met which will sap currency support.
It also considers that the BoE is in a no-win situation.
Even if the central bank continues to raise rates, BNP also expects that market confidence in Sterling would suffer to the perception of a long-term inflation problem.
It adds; “Both of these developments would be GBP-negative, in our view.”
The bank also maintains a negative stance on UK fundamentals. It adds; “We expect GBP to remain structurally weak due to UK growth underperforming its peers, remaining below-trend, and its persistent current-account deficit that requires foreign funding.”
Overall, BNP expects that the Euro to Pound (EUR/GBP) exchange rate will trade close to 0.88 during the forecast period.