"Rarely is a currency’s outlook quite as uncertain as GBP’s at present" - Paul Meggyesi, JP Morgan.

Spot-market quotations:GBP to EUR rate today: 1.1299, day's best: 1.1315EUR to GBP rate today: 0.8849, day's best: 0.8853Pound Sterling is forecast to defend a floor towards 1.11 against the Euro for the duration of 2017 and early 2018 we are told by an analyst at the world’s largest investment bank.

The latest findings from JP Morgan - detailed in their latest foreign exchange guidance note - should provide some certainty to those who are looking to transact into Euros over coming months, although it will disappoint those who were hoping for a comeback.

The exchange rate has been more or less locked around the 1.13-1.14 range for seven weeks now and the findings would suggest a floor in this region is likely to hold.

While the rate is expected to maintain familiar levels, the risks to the projections are large and JP Morgan’s Paul Meggyesi says the Pound’s outlook is "dominated by uncertainty".

“Rarely is a currency’s outlook quite as uncertain as GBP’s at present,” says the analyst adding, “the list of imponderables has been dominated by politics over the past year - the over-arching issue of Brexit of course followed by the indecisive general election which could yet alter the contours of Brexit and fiscal policy.”

Not only has Sterling the headache of Brexit to overcome, but also now an uncertain monetary policy outlook at the Bank of England.

In fact it is the Bank of England which is increasingly dominating near-term moves in the currency.

We saw Sterling take a dip lower on July 18 after inflation data showed prices rises were slowing; which has lead markets to question whether or not the Bank really wants to raise interest rates at a time of heightened economic and political nerves.

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The Bank of England is Turning

At the last meeting, “the BoE surprised observers,” says Meggyesi, “three of the eight MPC members voted to hike in June, up from two in May.”

Then added to that the once so dovish Governor and the chief economist subsequently articulated arguments which ran contrary to their initial dovish views. (A dove is a policy-maker that needs great convincing to raise interest rates).

The big question for Sterling traders is whether anything will actually come of this more hawkish refrain from Threadneedle street? (A hawk hardly needs convincing that now is the time to raise rates).

But, a Bank of England Rate Rise is No Saviour

Concerning the outlook for the Pound as a function of interest rates, JP Morgan are the latest to suggest raising interest rates will actually not be supportive of Sterling.

They make the distinction between rate rises which are undertaken during periods when inflation is running high because the economy is growing and those such as at the moment when inflation is high because of ‘exogenous’ factors – e.g currency devaluation.

Not surprisingly the normal link between rising interest rates and rising currency falls down when growth is removed from the equation.

“The bottom line is that anti-cyclical rate hikes motivated by inflation are rather more ambiguous for the exchange rate than hikes justified by a strong economy,” says Meggyesi.

We have heard this before - HSBC have described an interest rate rise in the current climate as inviting a “an unwarranted brutality” to be met out on the economy.

And, UniCredit believe that at best any upward impact on Sterling stemming from a rate rise would be limited.

More Growth Must Happen

To get more bullish on Sterling, JP Morgan say they would want to see more growth.

“To justify a materially bullish forecast for GBP we would need to see growth accelerating, not just inflation,” says Meggyesi.

As far as the Brexit process goes their base case scenario is benign for Sterling.

“A weakened government need not be detrimental for GBP if this results in less fiscal austerity and the acceptance of an economically less disruptive Brexit (we believe there is a 70% chance of an orderly, phased transition out of the EU starting in 2019 or a lengthy extension to the Article 50 process,” says Meggyesi.

However, having said that the relationship between politics and GBP is not “linear” and GBP would weaken if May’s government started to unravel, for example.

A Stronger Euro

JP Morgan’s neutral outlook for Sterling contrasts with their release of a more bullish forecast for the Euro, and suggests the Euro will rise versus the Pound, even though their official forecasts are actually quite dampened in terms of Euro appreciation versus GBP.

JP Morgan recently turned bullish for the Euro versus the USD, at least in the short-term, expecting the pair to reach 1.15 from 1.08 previously – a substantial re-evaluation.

This should aid Euro strength in the EUR v GBP cross.

Previously, analysts had been more sanguine on the Euro’s outlook, expecting the European Central Bank (ECB) to remain reticent about tapering asset purchases, but as it has turned out the Bank has been quite vocal about winding down their stimulus programme.

But over recent weeks we have seen the ECB signal a taper announcement for September.

They describe the ECB as being “activist”, and this warrants a modest upgrade in their forecasts particularly in the short-term.

The Euro has also benefited from the share of vote falling for the anti-euro Five Star party in Italy.

Despite equity inflows declining - a fact which would normally weigh on the Euro – the expectations of the ECB cutting stimulus has been a stronger driver for the Euro, and this is expected to continue, thus any weakness from diminishing equity flows is unlikely to last.

“Our equity strategists have been of the view that Euro area equities are no longer cheap which could further weigh on the inflows in the coming weeks. Into September, the expectation is for ECB policy rather than capital inflows to be a bigger driver of valuations,” said Chandan.

Forecasts for GBP v EUR: Lower, but Not Too Low

It’s no surprise then that the Euro is seen enjoying an advantage against Sterling going forward.

JP Morgan’s official forecasts are for EUR/GBP to rise to 0.89 by September 2017 (from the current 0.8789).

They then expect the pair to end the year at 0.90, to maintain 0.90 after Q1 and then to pull back to 0.89 in Q2 2018.

This equates as a Pound to Euro exchange rate of 1.1236 and 1.11.

So some certainty can be found in the projection targets, but the message is that an uncertaint Sterling could deliver some surprises. So make sure you have a strategy in place that protects against any rude surprises.

Unwavering Positive Sentiment on Global Markets

Looking at the broader markets, the US Nasdaq set another record-higher over the course of the past 24 hours amidst continued investor bullishness.

But, European markets failed to capitalise on last week’s rally, hamstrung by Euro strength.

For the Euro and Eurozone markets, all eyes are on Thursday's ECB meeting where there is a chance policy-makers might try and push back against recent strength in the Euro.

"The Euro’s recent strength may have been predicated on the anticipation of a shift towards the tapering of quantitative easing. Analysts will be watching closely to see Draghi confirm a move towards tightening monetary policy, which would boost the euro against its peers," says Paresh Davdra, CEO at RationalFX.

In London the FTSE 100 continues its fight to hold 7400, although in the mid-week session it does not have the aid of mining sector strength that was so notable yesterday.

BHP Billiton’s record production in some operations is not the kind of news to excite investors, who are keeping a wary eye on commodity prices and production levels.

Having rallied by almost a fifth since the June lows, BHP and other miners look vulnerable to some selling, particularly if the US dollar finds its footing.

Earnings season so far has avoided any nasty surprises, and Morgan Stanley becomes the latest big financial institution to step up.

Goldman Sachs' slump in trading revenues certainly worried markets, especially since there seems no let-up in the low volatility that has prevailed all year. Meanwhile there seems no stopping the tech rally, fired up as it was by Netflix.

Valuation worries could be easily laid to rest if the sector keeps up the positive newsflow. Ahead of the open, we expect the Dow to start at 21,557, 17 points lower from Tuesday’s close.