Pound to Euro Outlook: GBP Eye November BoE Rate Cut, EUR Waits ECB Call

September 11, 2024 - Written by David Woodsmith

STORY LINK Pound to Euro Outlook: GBP Eye November BoE Rate Cut, EUR Waits ECB Call

There was choppy Pound trading after the latest UK jobs data, but the Pound to Euro (GBP/EUR) exchange rate settled with a small gain to 1.1855.

ING expects strong GBP/EUR resistance close to 1.19.

There are very strong expectations that the Bank of England (BoE) and ECB will cut interest rates again before the end of this year.

Traders, however, expect that the ECB will cut rates at least twice while the most likely outcome is that the BoE sanctions only one cut.

While the UK labour-market data keeps the BoE on track for a November cut, the Pound has the potential to edge lower if ECB expectations are scaled back following Thursday’s meeting.

The latest UK labour-market data was again notably mixed with significant scepticism over the data’s accuracy.

The unemployment rate to 4.1% in the three months to July from 4.2% previously and in line with consensus forecasts.

There was, however, a provisional 59,000 decline in payrolls for August following a 6,000 July decline and vacancies declined for the 26th consecutive month.

There was, however, a strong 265,000 increase in quarterly employment, the largest increase for over two years as economic inactivity retreated slightly from record highs.

Headline annual earnings growth slowed further to 4.0% from a revised 4.6% previously and marginally below expectations of 4.1% while underlying earnings growth met forecasts at 5.1% from 5.4%.

Excluding bonuses, private sector pay growth slowed to 4.9% in the three months to July, close to the BoE forecast.

According to Jefferies economist Modupe Adegbembo; “We think the reliability issues with the Labour Force Survey (LFS) mean the Bank of England (BOE) will not place much weight on the bounce in employment, but it should kill any lingering expectations of a September rate cut.”

Luke Bartholomew, deputy chief economist at asset manager abrdn took a similar view; "There are still a few important data reports before the Bank needs to decide on interest rates again, but as things stand it is hard to see a cut next week. Instead, we expect the next cut to come in November."

Money markets indicate less than a 25% chance of a September cut.

As far as the ECB is concerned, there are very strong expectations that the central bank will sanction a further 25 basis-point interest rate cut this week.

Markets are also very confident that rates will be cut again in December with a 40% chance of an additional move in October.

ING sees the potential for the ECB to push back against these expectations; “Downplaying the chance of an October cut and confining itself to quarterly steps on rates – at least for now – should act as a brake on the potential pace of easing.”

Any adjustment would tend to underpin the Euro.

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TAGS: Pound Euro Forecasts