Concerns Over UK Borrowing Sends Pound to Euro Exchange Rate Lower

October 23, 2024 - Written by John Cameron

STORY LINK Concerns Over UK Borrowing Sends Pound to Euro Exchange Rate Lower

The Pound to Euro (GBP/EUR) exchange rate weakened on Tuesday, as markets reacted to worrying UK borrowing data.

At the time of writing, GBP/EUR was trading at approximately €1.1985, down about 0.2% from Tuesday’s opening rates.

The Pound (GBP) stumbled on Tuesday as markets reacted to the release of the UK’s latest public borrowing figures.

According to the Office for National Statistics (ONS), the UK government borrowed £16.6bn in September, significantly higher than the £13bn recorded in August and well above expectations of a reduction to £10.3bn.

This unexpected surge in borrowing revived concerns about the UK’s fiscal outlook, especially with Chancellor Rachel Reeves’s Autumn Budget just around the corner.

The Pound weakened as this stoked concerns that Reeves will need to hike taxes next week.

Sterling’s losses also came despite the International Monetary Fund (IMF) revising its 2024 UK growth forecast upwards, predicting the economy will expand by 1.1%, compared to the 0.7% previously forecast in July.

While the Euro (EUR) gained against the Pound, it struggled to extend its rally against other major currencies.

This came after a report from Goldman Sachs analysts suggested that a victory for Donald Trump in the upcoming US Presidential election could weigh heavily on the Euro, with forecasts it would even lead the single currency to weaken as much as 10% and potential see EUR/USD drop back to parity for the first time since late 2022..

The analysts predict that Trump’s proposed tariffs and domestic tax cuts could negatively impact European imports and drive up US interest rates, putting downward pressure on the Euro.

Looking forward, the Pound to Euro exchange rate may remain range-bound on Wednesday, with no major UK or Eurozone economic data releases scheduled.

Both GBP and EUR investors are likely to exercise caution ahead of Thursday’s preliminary PMI figures for October.

The Eurozone’s private sector is expected to show continued contraction, while the UK’s private sector is predicted to stay in positive territory. If these forecasts hold true, GBP/EUR may rally later in the week.

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TAGS: Pound Euro Forecasts