Sterling starts the week at its strongest against the euro in around seventeen months, just as three of the biggest events of the autumn arrive together: the UK Budget, the US Federal Reserve’s rate decision and the European Central Bank’s rate decision. The Bank of England follows next week. Below, we look at what could move each pair over the next week or two.
Latest market insights:
Pound to euro: a seventeen-month high meets a big week
- Sterling rose around 0.9% against the euro last week, its fourth weekly gain in a row and about 3% over the past month. Strong UK business surveys helped, as did earlier figures showing unemployment falling to 4.7% and inflation rising to 3.5%, which have made a Bank of England rate rise next week look very likely. The euro, meanwhile, has been weighed down by French unrest, high energy prices and a slowdown in eurozone business activity, with France’s business activity falling back into contraction.
- Wednesday’s Budget is now the main UK event. Chancellor John Healey is expected to play it safe, with modest support for households and businesses and few big new spending commitments. UK government borrowing costs have risen sharply this year, which has left him less room to manoeuvre before breaking his own borrowing rules. If markets judge his plans credible, borrowing costs could stay steady and sterling could hold its gains. A surprise that unsettles investors could do the opposite. There is another risk to bear in mind: after such a long run, sterling looks stretched against the euro, so a pause or pullback is possible even without bad news.
- On Thursday, the European Central Bank is expected to keep its rate at 2.5%. Most economists expect a rise in December instead, so any hints about timing could move the euro.
- With the Budget, the Fed and the European Central Bank all due this week, sterling can move 1% in a few days. On a €400,000 purchase, that is around £3,400 either way, which is a significant sum to have to find at short notice. This is the kind of movement that can happen, in either direction, between agreeing a purchase price and completing. Our currency specialists work with clients to plan for it rather than guess where rates will go. A rate order lets you set the rate you would like to trade at, and acts on it automatically, so you do not have to watch the market. A forward contract fixes a rate for your completion date, so you know exactly what you need, though you would not benefit if rates moved in your favour. Both can involve a deposit and are worth discussing with a specialist in the context of your own timeline. Call us on +44 (0)204 506 5672 to talk through your options.
US dollar to euro: a Fed hold expected, with the tone in focus
- The dollar eased from its recent highs last week as hopes of a Federal Reserve rate rise this month faded. On Wednesday, the Fed is widely expected to keep rates at 3.75% to 4%, and economists polled expect a rise in December instead. With so little doubt about the decision itself, attention falls on the language around it and on Chair Kevin Warsh’s press conference. He has said he will no longer hint at the next move in advance, so his tone on inflation could move the dollar in either direction.
- The euro remains weak against the dollar, with French worries and high energy prices still weighing, and the European Central Bank’s decision on Thursday adds to the picture. Looking to next week, US midterm elections on Tuesday 3 November could also affect the dollar, depending on how they affect expectations for US government borrowing.
Pound to US dollar: two tests on Wednesday
- Sterling rose around 0.4% against the dollar last week. It touched its highest in about five weeks midweek, helped by strong UK jobs figures, before slipping back on Friday as the dollar strengthened.
- Wednesday brings two tests: the Budget at lunchtime and the Fed’s decision that evening. A firmer message from the Fed could strengthen the dollar and weigh on sterling, while a calm Budget and a Bank of England rate rise next week could support it. As ever, none of this can be predicted with certainty.
What to watch this week:
Wednesday 28 October:
- UK Budget from Chancellor John Healey at 12:30.
- US Federal Reserve rate decision in the evening (UK time), followed by a press conference from Fed Chair Kevin Warsh.
Thursday 29 October:
- European Central Bank rate decision at 13:15 (UK time).
If you have an international transfer coming up in the next few weeks or months, for a property purchase, a pension payment, supporting family abroad, or any other reason, the events of this week are a useful reminder that exchange rates can move quickly, and not always in the direction you’d hope.
The good news is that you don’t have to simply wait and see what happens. Speaking with a currency specialist costs nothing and carries no obligation. They can talk you through your options, including spot contracts for transfers you need to make now, and forward contracts for transfers you’re planning further ahead, and help you understand how today’s rate movements might affect your specific situation.
Contact Lumon on +44 (0)204 506 5672 for a free, no-obligation conversation and discover what options you have available to help.
