The Pound to Euro exchange rate (GBP/EUR) has stabilized around 1.1850. Credit Agricole believes that the Pound has already factored in many positives and may not see much room for gains if Labour wins a significant majority in the upcoming election. The bank is more concerned about the French election, warning of potential sharp losses for the Euro if the left-wing alliance secures a majority.
Analyzing past UK election results, Credit Agricole notes that the Pound typically weakens immediately following a Labour victory, although it tends to see a 1.8% gain over a 12-month period. The bank predicts a comfortable Labour win, which could support the Pound due to expectations of political stability and pro-growth policies.
In terms of the French elections, Credit Agricole suggests that a hung parliament could provide immediate relief for the Pound to Euro exchange rate, while a clean sweep by the National Rally (RN) may initially boost GBP/EUR before retracting. The bank anticipates a trading range of 1.1900 to 1.2050.
A victory for the left-wing national alliance (NFP) in France could have negative implications for the Euro, potentially causing GBP/EUR to jump to 1.22. Credit Agricole believes that the outcome of the French election will have a greater impact on the EUR/GBP exchange rate in the short term.
The bank’s outlook for GBP/USD sees the currency pair remaining stable or slightly weaker in the next 3-6 months before rallying to 1.35 in 2025. The EUR/GBP outlook will depend on the French election outcome, with the possibility of the exchange rate dropping towards 0.82 in response to a left-wing alliance victory.
Credit Agricole suggests that some negative factors related to the French and UK elections are already priced into EUR/GBP, limiting potential drops below recent lows. A less dovish Bank of England compared to the European Central Bank could push EUR/GBP towards 0.83 or lower in 2025.