Pound Sterling Today: GBP/EUR Recovers from Weekly Lows

September 5, 2024 - Written by David Woodsmith

STORY LINK Pound Sterling Today: GBP/EUR Recovers from Weekly Lows

The Pound has been hampered by weaker global risk conditions amid a sharp dip in equity markets, although the currency overall has been broadly resilient.

The Pound to Euro (GBP/EUR) exchange rate found support at 1-week lows below 1.1860 and secured a tentative recovery to 1.1870.

Risk conditions will remain important for the Pound and there is an on-going risk of position liquidation given that global investors have again boosted their long positions.

The latest COT data, released by the CFTC recorded an increase in long, non-commercial Pound positions to a 4-week high of close to 90,00 contracts from 67,500 the previous week.

The Pound will, therefore, still be vulnerable if a further slide in risk conditions and fears over the global economy triggers a shakeout in positions.

MUFG commented; “Global growth fears are certainly intensifying which we suspect will potentially see a further extension of G10 FX performance like we saw yesterday – at least through to the FOMC meeting on 18th September.”

The final UK PMI August services-sector index was revised higher to 53.7 for August from the flash reading of 53.3 which was above the July reading of 52.5 and the tenth successive reading in expansion territory.

Tim Moore, Economics Director at S&P Global Market Intelligence commented; "August data highlighted a recovery in UK service sector performance as improving economic conditions and domestic political stability helped to bolster customer demand.”

There was a slight dip in business confidence for the month with companies wary over fiscal policy.

Moore added; “Hopes of interest rate cuts and steady improvements in broader economic conditions helped to support confidence, but some firms cited concerns about policy uncertainty in the run up to the Autumn Budget."

The final reading for the Euro-Zone PMI services-sector index was revised down to 52.9 from the flash reading of 53.3, although this was still a 3-month high.

Individual components were mixed with deterioration in business confidence.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that there was a boost from the Olympics and commented; “The big question is whether this boost is sustainable. The positive vibes from the Games and the ongoing Paralympics might carry through into September in part, but we expect the slowdown in growth, which started in May, to likely resume in the coming months.”

As far as interest rates are concerned it added; “As for the ECB, they are probably breathing a small sigh of relief thanks to the latest prices data, the ECB is likely to see this as further justification for cutting interest rates at their September 12 meeting.”

The relative performance of the UK economy compared with the Euro-Zone and ECB rate-cut expectations should provide net Pound support.

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TAGS: Pound Sterling Forecasts