Pound set to outperform and euro to weaken amid diverging rate policies

The British pound is primed for outperformance, while the euro faces continued downward pressure for the rest of 2024, predicts the CEO of one of the world’s largest independent financial advisory and asset management organizations.

deVere Group’s Nigel Green says these developments in the currency market could offer strategic advantages for investors.

“The euro is being squeezed, which we expect will continue into the year’s end. Several factors are at play, with the key driver being the increased expectation that the European Central Bank (ECB) will again cut interest rates next month.

“A string of weak economic data has raised concerns about growth across the Eurozone, and this has pushed market sentiment towards a potential easing of monetary policy by October,” he notes.

While inflation remains a focal point, the ECB’s stance is evolving as economic slowdown worries grow louder.

Isabel Schnabel, a member of the ECB Executive Board, recently voiced a more cautious tone on Europe’s growth outlook, signaling that the central bank may prioritize growth over controlling inflation in its immediate policy decisions.

“For investors, this presents an opportunity to reallocate or hedge portfolios that have significant exposure to euro-denominated assets.

“With the currency under pressure, diversification into assets in currencies like the British pound or US dollar may help preserve value and mitigate risks associated with a weakening euro,” comments Nigel Green.

In contrast to the euro, the British pound is positioned for a strong finish to 2024.

The deVere CEO says: “While the Bank of England (BoE) has initiated a cycle of interest rate cuts, it’s expected to move more cautiously than its counterparts at the ECB and US Federal Reserve. This more measured approach provides substantial support for sterling.”

Unlike the Eurozone, where inflation is slowing and growth concerns are rising, the UK is dealing with underlying inflationary pressures that remain sticky. Wages continue to rise, and this dynamic is expected to keep inflation above the BoE’s 2.0% target for the next couple of years.

“Rate cuts from the BoE will likely be implemented at a slower pace and in smaller increments – potentially just 10 basis points at a time.

“For investors, this presents a compelling opportunity to capitalize on the pound’s strength.

“With sterling expected to outperform both the euro and the dollar in the coming months, holding assets denominated in pounds or investing in UK-based opportunities can yield attractive returns,” affirms Nigel Green.

“With the euro under pressure and the pound gaining strength, investors have a prime opportunity to adjust their portfolios and strategies to take advantage of these trends.

“By acting now, investors can position themselves to capitalize on the changing macroeconomic environment and protect their portfolios against potential downside,” he concludes.