Pound Euro Exchange Rate Forecast: GBP/EUR Touches Five-Day Best

October 24, 2024 - Written by John Cameron

STORY LINK Pound Euro Exchange Rate Forecast: GBP/EUR Touches Five-Day Best

The Pound Euro (GBP/EUR) exchange rate touched a five-day high on Wednesday, although it wavered in a narrow range, as a risk-off mood and UK budget hopes impacted the pairing.

At the time of writing, GBP/EUR traded at €1.2034, having hit a five-day high of €1.2043 earlier in the session.

The Euro (EUR) had a mixed performance on Wednesday, influenced by a risk-off market mood and a strengthening US Dollar (USD).

While the risk-averse market sentiment supported the safer Euro against its riskier counterparts, the Euro's strong negative correlation with the rising US Dollar exerted downward pressure on EUR.

The US Dollar and the risk-off mood were both driven by 'Trump trade'. Investors have been betting on a Donald Trump victory in next month's US presidential election, with the policy implications impacting USD and wider markets.

Analysts suggest that Trump’s protectionist policies and tax cuts could drive up US inflation and negatively impact the global economy, with these expectations boosting the USD and souring the market mood.

Meanwhile, the increasingly risk-sensitive Pound (GBP) maintained its strength against the Euro on Wednesday, even in the face of a gloomy market mood.

GBP’s resilience was bolstered by hopes of pro-growth measures in the UK government’s upcoming Autumn Budget.

The anticipation surrounding the budget has caused some volatility in the Pound over recent weeks, with fears of tax hikes and spending cuts weighing on GBP, while hopes of pro-growth measures have provided support.

On Wednesday, hopes of pro-growth measures appeared to bolster Sterling, enabling it to hold steady against the safer Euro despite the prevailing risk-off market mood. The optimism came as the Lloyds Banking Group voiced its confidence in the budget.

Lloyds Chief Financial Officer William Chalmers stated:

‘Whatever the tax changes might be, we believe that they will be pursued in the context of a constructive, pro-growth agenda. And it’s that overall balance that we’re really looking for, and indeed it’s that overall balance, that pro-growth agenda, that we would seek to be a part of going forward.’

Looking forward, Thursday's PMI surveys may influence the Pound Euro pair's movement. The Eurozone's surveys are predicted to indicate another contraction in overall business activity this month, though at a slower rate than in September.

Conversely, the UK's PMIs are expected to remain steady, with both manufacturing and the key services sector staying in positive territory.

These outcomes might lead investors to prefer the Pound over the Euro. However, any unanticipated results could generate volatility.

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TAGS: Pound Euro Forecasts