GBP on the Rise: Stronger Pound Supported by Economic Optimism.

• GBP Steady and Strong: The British Pound remained stable despite limited data, supported by strong services PMI figures and economic resilience, boosting its performance against the Euro and Dollar.
• Sterling to Outperform: ABN AMRO forecasts continued outperformance of the Pound, expecting further gains against the Euro and Dollar due to higher UK interest rates compared to other major economies.
• Bank of England Rate Strategy: The Bank of England is expected to cut rates more slowly than the U.S. Federal Reserve and European Central Bank, offering continued support for GBP as inflation and wage pressures remain high.
• EUR/GBP Outlook: Citibank advises clients to lock in recent EUR/GBP gains, predicting a gradual decline in the Euro against the Pound, especially if key support levels are breached.
• GBP/USD Volatility: The GBP/USD exchange rate could experience high volatility in the near term, with key U.S. data releases expected to influence movement, potentially pushing the rate above 1.3265 or below 1.30.

GBP: The British Pound (GBP) remained steady on Thursday despite the lack of major data releases. Market optimism lingered after better-than-expected services PMI figures from Wednesday, which showcased the UK’s economic resilience. August’s revised PMI highlighted this strength, boosting the Pound during Thursday’s European trading session. ABN AMRO’s latest foreign exchange forecast suggests that the Pound is poised for further gains against both the Euro and Dollar in the months ahead. Georgette Boele, Senior FX Strategist at ABN AMRO, notes, “We expect sterling to outperform the dollar and the euro in our forecast horizon.” So far in 2024, the Pound has been the year’s best-performing currency, with the Pound to Euro exchange rate rising by 2.83%, and the Pound to Dollar rate gaining 3.47%. ABN AMRO’s forecasts suggest these rates could climb beyond 1.20 and 1.33, respectively. This outperformance is driven by the Bank of England’s elevated base interest rate, which offers attractive returns to overseas investors. The UK’s three-month overnight index swap (OIS) rate stands at 4.87%, just below the U.S. rate of 4.97%, but UK rates are expected to surpass U.S. levels as the Federal Reserve cuts rates later this year. Despite a recent rate cut by the Bank of England, it is anticipated that further cuts will be slower than those of the European Central Bank and the Federal Reserve, providing continued support for the Pound. Boele adds, “Sticky wage growth and persistent inflation pressure will likely lead to more gradual rate cuts compared to the ECB and Fed, even into next year.”

EUR: Citibank has advised clients selling euros for pounds to lock in recent gains, expecting a gradual decline in EUR/GBP. “Recent economic developments, with the UK’s strong performance versus Germany’s slowdown, should continue to support this outlook,” says a note from Citi. However, a significant move lower will require a break below the key 0.8383 support level. Should this occur, further downside towards 0.8200-0.8250 could be on the horizon. For those following the Pound-Euro market, this would imply a rise to 1.21-1.22 for GBP/EUR. In early August, the Euro spiked to 0.8620 against the Pound amidst a global market selloff and the Bank of England’s rate cut. However, the Pound quickly recovered, returning to pre-cut levels and establishing stability above the 0.84 level, which is proving to be a key support point frustrating EUR/GBP sellers.

USD: The GBP/USD exchange rate surged to 1.3175 following weak U.S. data but later settled at 1.3160 on Wednesday. The next two days of U.S. data releases will be crucial for GBP/USD, with high volatility expected, especially in equity markets. Depending on the data, the rate could reach 30-month highs above 1.3265 or drop to three-week lows near 1.30. ING predicts that the Pound could struggle in the short term, with a potential dip to 1.3100. However, over the longer term, they expect the dollar to weaken, with GBP/USD maintaining its position in the low 1.30s. The Bank of England’s latest survey showed little change in wage growth, reinforcing expectations that it will be cautious in cutting rates further. While the Federal Reserve is widely expected to cut rates at its September 18th meeting, the size of the cut remains uncertain. Friday’s U.S. jobs report will be key for near-term direction, with forecasts suggesting an increase in non-farm payrolls of 165,000, up from 114,000, and a slight drop in the unemployment rate to 4.2%. Weaker-than-expected data could heighten expectations of a larger rate cut, adding further volatility to the market.