Pound to Euro Rate in Friday Swoon

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Pound Sterling in late-week swoon against the Euro after global stock markets see aggressive selling.

The Pound to Euro exchange rate looks set for its fifth negative daily close in six after a deterioration in investor sentiment scuppered earlier gains.

The pair fell to 1.1846 from a high of 1.1887 as global financial markets entered a distinctly 'risk off' mode after investors saw the odds of a 50 basis point reduction in interest rates from the Federal Reserve on September 18 faded.

There is no clear driver of the slide in expectations. Instead, we have two potential catalysts 1) a relatively mundane jobs report might have disappointed market positioning that expected a clearer deterioration, and, 2) The Fed's John Williams indicated it's time to cut, but his remarks disappointed investors as he did not indicate that he favours a 50bp move.

Investment bank consensus forecasts update: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/EUR. Please request a copy here.

Instead, he said the rate path would be data-dependent, giving no hint that the Fed was in a rush to bolster sentiment.

The market's reaction shows expectations for a strong opening salvo to the impending rate cutting cycle had become elevated, and the realisation that a more vanilla 25bp cut was more likely requires a readjustment in positions.

"The US labour market is clearly cooler, but most indicators still show an economy operating at trend or higher. It makes sense for the Fed to start removing policy restraint, but we see little need to panic," says Lars Mouland, an economist at Nordea Bank.

The Pound-Dollar is particularly sensitive to global sentiment, tending to fall when stock markets come under pressure. Pound-Euro is also sensitive but to a lesser degree.

The biggest losers in the G10 in this environment are the Antipodean NZD and AUD, as well as the Scandinavian NOK and SEK.

The British Pound remains in an uptrend against the Euro and Dollar, and for now, we would view weakness as being short-lived and technical in nature.

We reported today that analysts at ABN AMRO upgraded their forecasts for the Pound, saying the UK currency will continue to outperform the Euro and Dollar in the coming months.

"Incoming data suggests stubbornly high underlying inflationary pressure, and sticky wage growth – which poses upside risks to medium-term inflation – is likely to keep rate cuts at a more gradual pace than for the ECB and Fed, even into next year," says Georgette Boele, Senior FX Strategist at ABN AMRO.

"We expect sterling to outperform the dollar and the euro in our forecast horizon," she adds.