GBP starts the week with a positive outlook against the EUR, supported by political uncertainties in the Eurozone and expectations that the Bank of England (BoE) will implement fewer interest rate cuts than the European Central Bank (ECB). The GBP/EUR exchange rate remains near 2024 highs, with technical indicators pointing to further upside. Trading above key moving averages and with a rising Relative Strength Index (RSI), the pair could test the 1.2090 resistance level, with potential for further gains if Thursday’s ECB decision signals a dovish stance.
The ECB meeting is this week’s main event, with markets largely anticipating a 25 basis point rate cut, though a deeper 50 basis point cut could weaken the Euro further. Should the ECB opt for caution, the Euro might find some support, tempering GBP/EUR gains. As a result, the tone of the ECB’s messaging will play a key role in determining the pair’s direction, particularly as it approaches its two-year high at 1.2103.
Domestic factors also weigh heavily on the Pound, with UK GDP data on Friday expected to show a 0.1% contraction for October. A deeper decline could pressure Sterling, while a stronger-than-expected reading might bolster it. Consumer sentiment, via the GfK index, will also be scrutinised for signs of deterioration post-budget, adding another layer of influence to GBP performance.
Looking ahead, next week’s UK inflation and labour market data will be pivotal for BoE policy expectations. Against the USD, GBP has held near 1.28 as signs of cooling in U.S. labour market momentum emerge. However, with the prospect of fewer Federal Reserve rate cuts in 2025, the Dollar could remain supported, capping GBP/USD gains. Overall, the Pound has room for near-term strength, but outcomes hinge on key data and central bank decisions this week.
