The Pound to Euro exchange rate has stabilized after giving up much of its second-quarter gains in early August. It is expected to trade within a range of approximately 1.1639 to 1.1711 this week. Last week, GBP/EUR steadied above 1.16 and around the middle of its first-quarter range as stock markets rebounded from early August’s losses, and low-yielding funding currencies retreated from recent highs. Despite this stabilization, Sterling remained one of the weaker G10 currencies. However, improved risk appetite in global markets and a relatively higher yield could push the pair toward the upper end of the 1.1639 to 1.1711 range in the coming days.
The Pound to Dollar exchange rate has also stabilized following a sharp decline in late July and early August. There are several reasons to believe it could recover further in the days ahead, potentially retesting the 200-week average around 1.2845. GBP/USD steadied atop its 200-day moving average at 1.2661 last week before recovering some recent losses. Improved global market risk appetite, recent US election polls, and inflation expectations on both sides of the Atlantic could support further gains.
Democratic Party presidential candidate Kamala Harris has gained an advantage over former President Donald Trump in recent opinion polls. This shift undermines a significant support factor for the US dollar, as Trump's protectionist trade policies and tariff strategies are seen as positive for US business investment, production, employment, and GDP. However, an immediate boost for GBP/USD is likely to come from inflation data from both sides of the Atlantic on Wednesday. Ongoing disinflation in the US could lead markets to bet on the Federal Reserve cutting interest rates by as much as 100 basis points by year-end, weighing on the Dollar. Meanwhile, UK inflation poses an asymmetric upside risk to Sterling.
