This week, GBP/EUR rate faces significant downside risks, with UK inflation and wage data set to play a decisive role. Despite some technical support around €1.1950, driven by the 21-day moving average, the Pound remains vulnerable. While GBP/EUR has pulled back from its recent highs near 1.20, technical indicators suggest room for further gains, with a retest of 1.1975 possible in the near term. However, if wage growth or inflation underperforms, the market’s focus will shift to potential rate cuts, which could undermine this positive setup and put further pressure on the Pound.
GBP/USD is also struggling to maintain ground, with the pair trading near mid-1.3000s, not far from last week’s one-month low. The USD remains bolstered by diminishing expectations of further large interest-rate cuts from the Federal Reserve, alongside a risk-off sentiment driven by ongoing geopolitical tensions in the Middle East. These factors are keeping demand for the safe-haven Dollar high. Meanwhile, growing expectations that the Bank of England may accelerate its rate-cutting cycle, potentially starting in November, are weighing heavily on the Pound, further pressuring the GBP/USD exchange rate.
Market sentiment around UK interest rates is at a critical juncture, with upcoming wage and inflation data likely to dictate the Pound's direction. Current market pricing suggests a 90% likelihood of a Bank of England rate cut in November, which could be reinforced if this week’s data underwhelms. While recent UK economic figures, such as a 0.2% GDP growth for August and stronger-than-expected manufacturing data, provided some temporary support, the broader outlook remains challenging. Meanwhile, in the US, favourable inflation data has reduced the urgency for further Fed rate cuts, limiting upside potential for the Pound in the GBP/USD pair.
