Pound on track to return to pre-Brexit levels after two-and-a-half year high against the euro
The pound is tipped to return to levels last seen before the Brexit referendum after hitting its strongest against the euro in almost three years.
As sterling rose to €1.2157 against the common currency – the highest since March 2022 – a senior currency trader in the city said it could reach €1.30 next year.
The pound was last at this level before Britain voted to leave the European Union in June 2016.
The prediction came as the European Central Bank (ECB) looks set to cut eurozone interest rates to 3 percent today in an attempt to revive the moribund economy, dragged down by the crises in Germany and France .
And the Federal Reserve is also on course to cut US interest rates next week after official figures showed inflation rose only marginally from 2.6 percent in October to 2.7 percent in November.
By contrast, the Bank of England is expected to leave interest rates in Britain unchanged at 4.75 percent next week, to the disappointment of millions of borrowers.
Rally: Pound sterling rose to €1.2157 against the common currency – the highest level since March 2022
Lower interest rates tend to weaken a currency, so the prospect of a rate cut in the eurozone – but not in the UK – has pushed the euro down against the pound.
Neil Jones, director of currency specialist TJM, said he expects eurozone interest rates to fall to 1.5 percent next year, from 3.25 percent before today’s expected cut to 3 percent.
“The ECB is on a trajectory of near collapse in interest rates, perhaps to emergency levels,” he told the BBC.
‘We know that political and economic disarray in Germany and France will push the ECB down.
‘Meanwhile, the Bank of England is likely to remain on hold, especially for December. But you can see that interest rates in Britain and the pound are destined to stay higher. I’m looking for €1.30 plus, so back to pre-Brexit levels.’
Jones admitted that he was in “a minority” in his prediction, but he claimed that the “vast majority” of people will agree with him within months.
Chris Turner, global head of markets at ING, said if the pound were to rise above €1.22 there would be “many reports of the pound returning to pre-Brexit levels”. He added: ‘We think the British pound can continue to perform well in the coming months.’
Joe Tuckey, head of currency analysis at Argentex, said: ‘Reaching the €1.30 level last seen before Brexit is achievable but would probably be the best-case scenario.
“Reaching such levels would likely depend on fundamental conditions in the eurozone becoming significantly worse than they are today.”
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