Pound Sterling Today: Global Narrative Continues to Support GBP Exchange Rates

October 1, 2024 - Written by David Woodsmith

STORY LINK Pound Sterling Today: Global Narrative Continues to Support GBP Exchange Rates

The Pound to Euro (GBP/EUR) exchange rate has stabilised just below the 1.2000 level amid firm Pound sentiment and Euro-Zone difficulties.

ING still sees scope for a near-term GBP/EUR move to 1.2050, but remains wary over the medium-term outlook.

It noted; “We remain somewhat concerned that the pound will soon face a correction as UK figures start to point to more urgency for easing, although this week may just be too early for that.”

The UK data flow has not derailed Pound sentiment while risk appetite remains firm.

Nationwide reported that UK house prices increased 0.7% in September after a 0.2% decline previously and compared with consensus forecasts of a 0.3% increase.

The annual increases advanced to 3.2% from 2.4% previously and the strongest reading since November 2022.

According to Nationwide's Chief Economist Robert Gardner; “borrowing costs have edged lower amid expectations that the Bank of England will continue to lower interest rates in the coming quarters.”

Second-quarter GDP growth was revised slightly lower to 0.5% from the flash reading of 0.6% with an annual increase of 0.7%.

Services-sector output increased 0.6% with small quarterly contractions in the industrial and construction sectors.

Markets are still wary over the budget due in late October.

Jane Foley, senior forex strategist at Rabobank commented; "I do think that we could be faced with a little bit of a rocky road as we approach the budget in the UK due to speculation that it could bring an increase in capital gains tax and maybe in employers' contributions for national insurance, both of which won't be very friendly to investors or entrepreneurs".

Euro-Zone data and ECB policy will be a key focus this week.

The latest German inflation data will be released on Monday followed by the Euro-Zone data on Tuesday.

Consensus forecasts are for the German annual rate to decline to 1.7% from 1.9% with the headline Euro-Zone rate retreating to 1.9% from 2.2%.

Weaker than expected readings would increase pressure for the ECB to cut interest rates more aggressively.

Danske Bank has shifted its view; “We now expect the ECB to cut in October, as the balance of risk towards weaker economic activity and labour market outweighs the inflation risks.”

At this stage, Nordea still expects that the ECB will resist an October cut; “We still think that the ECB will not change its mind based on one set of monthly indicators, and continue to find December a slightly more likely timing for the next cut.

Nevertheless, it added; “However, the PMIs have emphasised downside risks, and a soft inflation print could be enough to tilt the majority in the Governing Council in favour of another cut as early as at the October meeting.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Sterling Forecasts