GBP/EUR Exchange Rate Coiled Near 1.1950, Pivotal Week for Pound

October 15, 2024 - Written by David Woodsmith

STORY LINK GBP/EUR Exchange Rate Coiled Near 1.1950, Pivotal Week for Pound

The Pound to Euro (GBP/EUR) exchange rate has continued to consolidate around 1.1950, but with the potential for substantial moves this week amid a wave of market-moving events including key UK data and an ECB policy meeting.

ING expects lower UK inflation and added; “This means that EUR/GBP could hold support at 0.8350 this week and retest the recent high at 0.8435. (GBP/EUR retreat to 1.1850)

Global influences will also be important with the risk that Middle East tensions will escalate with a spike in oil prices.

MUFG commented; “The significant escalation of tensions in the Middle East with market participants still waiting to see how Israel retaliates to the missile attacks from Iran could be encouraging a lightening of long GBP positions.”

It added; “The attractiveness of long GBP carry positions would be undermined by higher financial market volatility and the UK economy would be hurt again if there was another negative energy price shock.”

ING noted the importance of UK data; “This week's release of UK jobs and especially inflation data on Wednesday could have a decent say in the pricing of the Bank of England's easing cycle and sterling.”

The latest UK labour-market report will be released on Tuesday with the unemployment rate forecast to remain at 4.1%.

The wages component will be very important with expectations of a further slowdown in headline annual wages growth to 3.8% from 4.0%. Underlying wages growth is also forecast to edge lower to 5.0% from 5.1%.

Markets remain very confident that interest rates will be cut in November.

Strong data would trigger some doubts over a November move and allow GBP/EUR to test 1.20 while a larger than expected slowdown would increase speculation over two rate cuts before the end of 2024.

Headline inflation is expected to decline to 1.9% from 2.2% with the core rate at 3.4% from 3.6% previously.

The UK government will hold an investment summit on Monday and positive headlines could support the Pound, but markets are focussed more on the late-October budget.

There are strong expectations of tax increases with rumours of increased employer national insurance contributions as well as the potential to amend fiscal rules to allow increased borrowing to fund investment.

MUFG commented; “While we are not expecting a repeat of the unfavourable market reaction to the Truss budget when the GBP temporarily fell sharply by over 3%, the government’s upcoming budget does pose some downside risk for the GBP if it triggers investor unease.”

The ECB will hold its latest policy meeting this week with strong expectations of back-to-back interest rate cuts with the deposit rate cut to 3.25% from 3.50%.

According to ING; “After a grim couple of months for eurozone data, the interest rate market now prices the European Central Bank's deposit rate being cut to 2.00% next summer. Our eurozone team have recently reached the same conclusion.

French budget headlines will also be important for the Euro.

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 Euro Forecasts