Pound Holds near 20-Month High against Euro

GBP/EUR Exchange Rate: Pound Refreshes 20-Month High

The Pound Euro exchange rate has fluctuated over the last week, while refreshing a 20-month high on Tuesday.

Following UK inflation unexpectedly slowing to 3.1% in September, Sterling slumped but soon recovered as investors repriced expectations for the Bank of England (BoE) to raise interest rates by the end of this year, or early 2022.

Meanwhile, the Autumn Budget is in focus today. Investors will look to UK government spending and tax plans, and what support businesses may receive.

The Office for Budget Responsibility’s (OBR) economic forecasts will accompany the budget and provide insight into UK economic growth, potentially denting GBP/EUR if expected growth slows in the fourth quarter.

GBP/USD Exchange Rate: Pound Fluctuates on UK Economic Data

The Pound US Dollar exchange rate has experienced volatility this week after mixed UK data releases.

GBP/USD slid at the end of last week’s session as September’s UK retail sales figures missed forecast and revealed a -0.2% contraction instead of 0.5% growth predicted.

Soon after, the Pound recovered some of its losses as manufacturing and services PMIs for October came in better-than-expected at 57.7 and 58, respectively. While factory activity increased slightly, the service sector expanded at its fastest pace since July.

Ongoing talks on the Northern Ireland protocol and rising UK Covid-19 cases will likely drive volatility in the Pound through this week, with the UK-EU appearing some way from an agreement and soaring coronavirus infections threatening the reintroduction of restrictions.

USD/GBP Exchange Rate: US Dollar Firm amid Shifting Market Mood

In the absence of significant US data releases, shifting market risk appetite has driven safe-haven demand for the US Dollar through the last week, as China’s Evergrande crisis stoked volatility and US-China economic talks took place.

Looking ahead, several high-impact US data releases will cause movement in USD, starting with durable goods orders today. Forecasts point to -1.1% contraction in September, down from August’s 1.8% growth, potentially weighing on USD/GBP.

Third quarter US GDP growth may also dent the US Dollar, with expectations for a growth to slow to 2.7%, a sharp fall from 6.7% in the second quarter.

With the Federal Reserve recently reiterating plans to taper its bond-buying programme, September’s PCE price index may have limited impact if it meets forecast of 4.4%.

However, the ISM manufacturing PMI release on Monday may support the ‘Greenback’ due to strong expected growth in the sector, although forecast suggest slowing slightly in October.

EUR/USD Exchange Rate: Euro Falls ahead of High-Impact Data

The Euro has trended lower against the US Dollar through the week on economic data releases and the European Central Bank’s (ECB) divergent policy stance compared to other major central banks.

Eurozone manufacturing and services PMIs weighed on EUR at the end of last week as data revealed growth slowed in the sectors in October, while the Ifo German business climate index fell to a seven-month low to reveal declining morale in Europe’s largest economy.

The ECB’s interest rate decision tomorrow may cause some movement in EUR/USD, although its impact may be limited by the central bank likely to maintain its loose monetary stance, differing to tightening expectations from the BoE and Federal Reserve.

Meanwhile, high-impact Eurozone inflation and GDP data published on Friday may dent the Euro. Inflation is forecast to have soared to 3.7% in October and GDP expected to have slowed in the third quarter to 3.5% from 14.3% in the second quarter.

Andrew Roberts

Contact Andrew Roberts