GBP to EUR: RBS sees exchange rate higher in one year

Last Updated on Monday, 13 June 2011 10:33 Monday, 13 June 2011 10:30

Looking at the euro in the short term we note that it is likely to be a week of plenty more rumours and little solid facts.

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The GBP to EUR rate is currently at 1.131.

RBS analysts have today said that they see the GBP EUR at 1.126 in one month's time.

In three months they see that exchange rate at    1.136, this rises to 1.163 in 6 months.

In 9 mont's time RBS call GBP to EUR at 1.205, and this rises to 1.235 in a years time.

With little new information out last week to change the RBS view, analysts continue to see the near term path of least resistance being to lower yields.

The morning FX Corporate Strategy note from the bank says:

"With a big week ahead for the UK (RICS, CPI, labour market data and retail sales) we believe the inflation picture is not as bleak as some would paint it – the fact that inflation is high is not new information and should not adversely impact swaps – it’s the actual path vs. the expected path that might do that. But with some signs of inflation expectations plateauing and with RBS economists in line with the market expecting CPI unchanged at 4.5% y/y, we don’t see the CPI report being the trigger for a big sell-off in yields – which is, we believe, what the market hopes for."

Looking at the euro in the short term we note that it is likely to be a week of plenty more rumours and little solid facts.

RBS do not expect to find out the concrete details of this next Greek rescue package until next week.

With aggregate spreads of European countries to Germany pushing to a new record high last week the market remains extremely nervous and we continue to believe that periphery spreads will move out wider. That means ongoing support for safe-haven markets - the UK and Germany.