Pound to euro forecast: Barclays Capital bullish on the outlook in 2012 as GBP likely to remain a safe haven

Last Updated on Wednesday, 08 February 2012 12:13 Written by Roberta Murray Wednesday, 08 February 2012 12:11

The pound to euro exchange rate is lower by some 0.2% on yesterday's close, our last quote on the exchange rate is at 1.1968.

Barclays Capital have this morning advised that they see the GBP maintaining strength over the EUR through 2012.

BarCap forecast the EUR/GBP exchange rate to be driven towards 0.80 over the next year.

---

Advertisement - Article Continues Below

---

In a morning note to clients BarCap says:

"Three factors matter for EUR/GBP: the risk from Greece; the UK’s relative economic performance; and valuation.

"The 20 March is a hard deadline for Greece. Unless it receives a bailout from the EU/IMF by then, it will not be able to finance the EUR14.5bn government bond that is due and will default.

"Financing is available, but first Greece needs to agree to measures that will reduce its debt-to-GDP ratio to 120%. Resolutions on the PSI, as well as the Greek government coalition agreeing to the troika’s terms of the bailout, are key elements of this. At the time of writing, both remain uncertain.

Uncertainty increases the appeal of safe-haven currencies.

"Within Europe, GBP is the preferred safe haven largely due to its weak relationship with euro area risk and its relatively high liquidity. GBP has also benefited from the government’s fiscal consolidation agenda and Bank of England purchases which have helped keep gilt yields low and supported the UK’s safe-haven appeal."

However the bank cautions that should euro area nerves increase as the March deadline looms, EURGBP is likely to sell off.