By Michael Lucas
GBPEUR The Pound again pushed up against the Euro yesterday to its highest level in about seventeen months, and 2.2% higher than just a month ago. Much of the move is Euro weakness rather than Pound strength. France’s budget troubles, and violent protests there over the weekend, are weighing on the single currency.
Tuesday morning’s UK jobs data added a Sterling-specific lift though. Unemployment fell to 4.7%, against 5.0% expected, and regular pay growth came in at 3.7%. The Pound jumped buy 0.2% within seconds of the release. The data all but locks in a 25-basis point Bank of England interest rate hike on 5 November. The BOE bank rate is 3.75% against an ECB deposit rate of 2.50%, and that gap continues to favour Sterling.
GBPUSD – Last Wednesday the Pound hit its 2026 low against the Dolla, after hot US core inflation revived talk of further Fed rate hikes. It bounced on a UK GDP beat and has pushed on this week. It has now seen a modest improvement, but still well below the August high. The Dollar has been supported by US Treasury yields near multi-decade highs, so Sterling’s gains here have depended on yields easing.
This morning, UK inflation figures posted a level of 3.5%, against the forecasted 3.4%. This has done little to affect the rates though as again, the BOE hike is almost fully priced in now.
Going forward towards the end of the week, Friday morning sees the release of UK retail sales figures, and UK and Eurozone Flash Manufacturing and Services PMIs also. On the US side, the Fed is in its blackout period, so there are no Fed speakers. Michigan consumer sentiment on Friday afternoon is the main US release. That leaves the Dollar driven by yields and risk appetite.
What does that mean for levels?
For GBPEUR, commentators describe the pair as overbought and expect consolidation, so recent gains could unwind, and therefore Euro buyers should maybe consider their options to secure a rate while these highs are still here.
For GBPUSD, the Dollar’s medium-term supports should cap any further gains, despite the likely UK interest rate hike.
Looking beyond Friday, next week is the real pivot. The UK Budget and the Fed decision both land on 28 October, the ECB follows on 29 October, and the Bank of England on 5 November. Expect some caution in positioning as those approach.