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Pound to Euro Hits 10-Day Best Exchange Rate Pricing

May 21, 2024 - Written by John Cameron


Pound Sterling (GBP) held firm against the Euro (EUR) on Friday with positioning ahead of a major week of UK data next week a key element in currency markets.

The Pound to Euro exchange rate (GBP/EUR) posted net gains on Friday with a 10-day high to just above the 1.1670 level.

The Pound to Dollar exchange rate (GBP/USD) also found support below 1.2650 and advanced to 1.2665 after the New York open.

According to Scotiabank; “Sterling’s drift after reaching my technical target of 1.27 yesterday looks corrective. While the daily chart suggests a potential stall in the GBP’s rebound, losses are minimal.”

UK developments were limited on Friday with Bank of England MPC member Mann making no comments on monetary policy in a speech on Friday.

The week ahead will, however, be potentially crucial for the Pound.

There are very important UK data releases with the prime focus on the latest inflation data.

The headline UK inflation rate will inevitably decline sharply from the 3.2% reported last month due to favourable base effects given a strong increase in prices last year.

The decline in retail energy prices this April will also cut the headline rate this month with a potential fall to near or potentially below 2.0%.

The core inflation rate and evidence on services-sector inflation is likely to be crucial for the Bank of England and the June interest rate decision.

The UK will also release the latest PMI business confidence data which will give important insights into the growth outlook.

Money markets are pricing in around a 55% chance of a rate cut in June, according to LSEG data.

According to Investec; "Our baseline case is still a June rate cut. We do consider however that significant reductions in the pace of private pay and the rate of services inflation could be quite a stretch and that the Monetary Policy Committee (MPC) could delay a move to August."

ING expects the Bank of England is likely to adopt a dovish stance and added; “we continue to like the chances of a move higher in EUR/GBP as markets may increase their bets on a June rate cut.”

The relative outlook between the UK and Europe will an important element for Pound sentiment.

Credit Agricole expects growth data will be important; “FX investors will look in particular for more evidence that the UK economic outlook continues to improve. We believe that the GBP would benefit from further evidence that the UK economic recovery has gone up a gear, especially if the repricing of BoE rate cuts grinds to a halt as a result.”

MUFG looked at the Euro-Zone outlook with ECB Council member Schnabel not backing a second rate cut in July; “While Schnabel is a known hawk, we suspect this line of thinking will quite easily get support at the meeting in June and will potentially quickly become the agreed communication.”

This stance should underpin the Euro.

JP Morgan remains confident in the dollar, but also expressed some caution; “The medium-term view is still bullish USD on high yields, growth cushion and other supports, but tactical concerns stem from nascent signs of fading US growth exceptionalism and saturated investor longs.”

MUFG noted some evidence of US vulnerability and potential implications; "The comments this week from Fed officials were in our view still indicative of a Fed that would be willing to turn and cut relatively quickly if the evidence becomes available to back it up."

ING expects the dollar will be resilient; “The dollar decline stalled yesterday in line with our expectations, and we still think there is not enough thrust from US data to justify a significantly weaker greenback just yet.”

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