GBP to EUR exchange rate forecast: On track to hit 1.200

The GBP to EUR exchange rate uptrend continued after the relatively strong UK economic numbers and the overall optimism about its recovery. The GBP/EUR rose to 1.1751, the highest level since February 24.

Sterling strength continues

The Sterling has been relatively strong this year. The closely-watched British pound index has risen by more than 1.5% this year.

This performance is mostly because of the recently-passed Brexit deal and the overall optimism by the Bank of England (BOE). The bank has resisted moving interest rates to the negative zone because of the damage it would cause to the banks.

Unlike other countries like Switzerland, Japan, and the EU that have negative rates, the banking sector plays a supersized role. In total, the financial sector accounts for 6.9% of the total economic output. Therefore, negative rates would have a significantly negative impact on the sector.

The GBP to EUR has also risen because of the divergent path between the UK and EU on vaccinations. While the UK was among the most affected country by the pandemic, its response has been among the best. It was the first country to start vaccinations. In total, the UK has vaccinated more than 29 million people while the EU has vaccinated more than 70 million people.

Meanwhile, economic numbers from the UK have been better than those from the EU. For example, while the UK has an unemployment rate of about 5.0% the EU’s rate is at 8.1%. The country’s manufacturing, services, and retail sales numbers have been better than those from the UK.

At the same time, while the European Central Bank (ECB) has left interest rates to the negative zone, the BOE has committed to leaving them at 0.10%. Therefore, the GBP to EUR exchange rate has risen because of the carry trade opportunity.

GBP to EUR exchange rate forecast

The daily chart shows that the GBP/EUR price has been on a strong upward trend. It has formed an ascending channel pattern and is slightly above the 25-day and 50-day moving averages. It is slightly below the upper side of the rising channel while the Relative Strength Index (RSI) has moved above the overbought level. Therefore, the GBP to EUR exchange rate will likely continue rising as investors target the next resistance at 1.200.