Pound Sterling to Euro Rate: A September Forecast

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August has confirmed and bolstered the view that the Pound to Euro exchange rate has now entered a sideways pattern, but rising volumes and downside data surprises could break the range over the coming weeks.

But until the market narrative shifts, the downside in the exchange rate is liable to be relatively limited at this point, as is the upside potential for sellers of Pound Sterling.

The increasingly predictable nature of the exchange rate does, however, present the benefit of being able to time and execute payments in a fairly well-behaved market.

Above: GBPEUR at daily intervals showing the summer range which offers some tactical guidance for September.

The recent retreat in Pound-Euro from the briefly-tested 2023 high at 1.1772 confirms air above 1.17 is rarified and Pound Sterling bulls struggle for breath at these levels.

The recent string of losses reinforces the range and brings a test of the lows towards 1.1540 into consideration over the coming days.

A summer range has nevertheless evolved in which Pound-Euro has tended to spend most of its time above 1.16.

In fact, since June 01 the pair has only closed below this level on nine occasions.

We are watching Eurozone inflation due on August 31 for clues as to whether the ECB will raise rates again on September 14.

A hike and commitment to further hikes could the Euro against the Pound, although any boost could prove limited as markets will worry about the negative impact of hikes on the economy.

UK data is meanwhile unlikely to prevent a final Bank of England rate hike in September, something that is well anticipated by the market.

In all, this is a market waiting for the next 'game-changing' moment that will bring a sustained break of the summer range.

Fortunately, volumes are expected to increase again in September after the usual August lull, a month that typically does not favour the Pound.

Economic data releases are starting to surprise lower in both the EU and UK, offering a potential narrative shift that could break this range range in the Autumn.

From a broader perspective, the Pound had been dominant heading into the summer and could be further supported as the UK will end the interest rate hiking cycle with a Bank of England interest rate higher than that of the European Central Bank.

A move towards 1.20 could therefore be on the cards over the coming months.

However, levels above 1.20 tend to be associated with Eurozone crises. Likewise, Pound-Euro below 1.11 (EUR/GBP 0.90) tends to be associated with UK crises.

In the absence of a crisis in either the UK or EU we can expect these broad outlines of 1.20 to the top and 1.11 to the bottom to be respected over the coming months.