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Pound to Euro Rate Week-Ahead Forecast: "Big Week for Sterling"

November 13, 2023 - Written by David Woodsmith


GBP/EUR Exchange Rate: Recovers Slightly from 6-Month Lows Ahead of Major UK Data releases

The pound-to-euro exchange rate (GBP/EUR) slipped to 6-month lows near 1.1420 on Friday before a tentative recovery to 1.1450 on Monday.

The media will focus on politics after Prime Minister sacked Home Secretary Braverman, but economic data will dominate Pound moves this week.

Rightmove reported a decline in house prices for October after a 0.5% increase the previous month and the sharpest monthly decline since 2018.

Tim Bannister, Rightmove’s director of property science commented; “The larger-than-usual drop this month signals that among the usual pricing seasonality, we are starting to see more new sellers heed their agents’ advice and come to market with more enticing prices to stand out from their over-optimistic competition.”

Prices are only 3.0% below the peak seen earlier in the year and Rightmove noted that the market was still resilient.

According to Tom Bill, head of UK residential research at Knight Frank; “The story of this slowdown is a double-digit fall in transactions rather than a dramatic price correction, which has been kept in check by weak supply.”

According to the latest quarterly UK Business Outlook from Accenture and S&P Global the net balance of firms expecting activity to increase over the next 12 months retreated to 37% in October from 40% in June and 43% in February.

The survey also reported that wage growth remains close to record highs, but there are expectations that prices inflation will slow.

According to the survey, UK confidence is still buoyant in global terms.

UK data releases will be a key element during the week.

According to ING; “It is quite a big week for sterling, where both the last wage and CPI releases emerge before the 14 December BoE rate meeting. Private sector wage data could be a little sticky tomorrow, although the BoE has recently been downplaying this.”

Consensus forecasts are for headline annual wages growth to slow to 7.5% from 8.1% with underlying earnings growth remaining at 7.8%.

The latest UK inflation data will be released on Wednesday.

There will inevitably be a sharp decline in the headline annual inflation rate due to the impact of energy prices.

Retail energy prices jumped in October 2022 and this will come out of the annual calculation. Prices also declined this October.

Consensus forecasts are for the headline annual rate to slide to 4.8% from 6.7%.

The core is expected to decline to 5.8% from 6.1%.

ING noted; “Wednesday's release of October CPI should meet Prime Minister Rishi Sunak's goal of sub-5% as the energy tariff adjustment comes through.”

According to the bank; “0.8800 looks to be the risk for EUR/GBP this week, once resistance at 0.8750 yields.” (1.1365 for GBP/EUR).

Valentin Marinov, head of G-10 currency strategy at Credit Agricole is more positive on the Pound; “Many negatives are already in the price of sterling.”

He added; “Rates markets are overreacting to what we still consider to be fairly neutral and very data-dependent forward guidance by the monetary policy committee.”

Bank of America strategist Kamal Sharma added; “Market pricing for UK rate cuts into next year seems inconsistent with rhetoric from the BOE. We believe that the profile resembles more of a table top rather than a downward sloping curve. Pricing out those rate cuts provides support for the pound.”

UBS strategist Yvan Berthoux expects rate expectations can retreat further; “The fundamental outlook has begun to soften again in the UK, prompting investors to question whether the BOE’s hawkish stance can be maintained for much longer.”

Prime Minister Sunak sacked Home Secretary Braverman on Monday and brought back a former Prime Minister Cameron as Foreign Secretary.

Hunt remained as Chancellor in the reshuffle.

Geoff Yu, senior macro strategist at BNY Mellon commented; "Cabinet reshuffles are a domestic political issue so for sterling, the outlook is really about the dollar."
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