Pound on track to return to pre-Brexit levels after hitting two-and-a-half-year highs against the euro

The pound is expected to return to levels last seen before the Brexit vote, after reaching its strongest point against the euro in almost three years.

As sterling rose to €1.2157 against the single currency – its highest level since March 2022 – a major City currency trader said it could hit €1.30 next year.

The pound was last at those levels before Britain voted to leave the European Union in June 2016.

The prediction came as the European Central Bank (ECB) looks set to cut interest rates in the eurozone to 3 percent today in a bid to revive the moribund economy, which has been dragged down by crises in Germany and France.

And the Federal Reserve is also on track to cut rates in the United States 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 the UK unchanged at 4.75 per cent next week, to the disappointment of millions of borrowers.

Lower interest rates tend to weaken a currency, so the prospect of a rate cut in the eurozone – but not the UK – has put pressure on the euro against the pound.

Neil Jones, managing director at currency specialist TJM, said he expects interest rates in the eurozone to fall to 1.5 percent next year from 3.25 percent ahead of today’s expected reduction to 3 percent. .

“The ECB is on a trajectory to almost collapse interest rates, perhaps to emergency levels,” he told the BBC.

‘We know that the political and economic disorder in Germany and France will push the ECB downwards.

‘Meanwhile, the Bank of England is likely to remain on hold, certainly through December. But you can see how interest rates in the UK and the pound are destined to remain higher. “I am looking for more than 1.30 euros, so we will return to pre-Brexit levels.”

Jones admitted he was in “a minority” in his forecast, but said the “vast majority” of people will agree with him within a few months.

Chris Turner, global head of markets at ING, said that if the pound rises above 1.22 euros, there will be “many reports that sterling will return to pre-Brexit levels.” He added: “We believe sterling can continue to perform well in the coming months.”

Joe Tuckey, head of currency analysis at Argentex, said: “Reaching the €1.30 levels last seen before Brexit is feasible but would probably represent a best-case scenario.

“Reaching such levels would likely depend on eurozone fundamentals getting considerably worse than they are now.”