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Pound sterling's pullback against the Euro has further to run, with its short-term average now rolling over.
The Pound to Euro exchange rate has spent seven weeks handing back the gains of its early-July surge, and the short-term moving average has now turned down towards the longer one, an alignment that argues this correction is extending rather than ending.
Friday delivered a bounce, with the market breaking beneath the longer average during the session and closing back above it, but that bounce arrived inside a sequence of lower highs running unbroken from the July peak and it did nothing to alter the direction of the shorter average descending into it.
From a tactical perspective, the Pound needs a catalyst to interrupt that alignment and the week does not supply one, because the UK calendar is close to bare, the eurozone's inflation prints are back-loaded to Friday morning, and the two events with real power over this cross are American: Wednesday's inflation report and Federal Reserve Chair Kevin Warsh's Jackson Hole speech on Friday afternoon.
Above: GBP/EUR daily chart. Image © Pound Sterling Live, chart created with TradingView.
The pair closed the previous week at 1.16847, a gain of 0.11%, after trading as low as 1.16598.
Spot finished at the 21-day moving average at 1.16835, with the 50-day beneath at 1.16732, which leaves the market pinned on the shorter descending line.
The 21-day has been falling since the final week of July while the 50-day is still rising, so the two are converging from opposite directions and the gap between them is now barely a tenth of a cent.
A short average descending into a rising long average resolves in a crossover, and that crossover is a matter of days away at the current rate of decline.
Friday's low of 1.16598 broke beneath the 50-day and was bought back, which makes it the marker to watch, but a single reversal inside a seven-week decline is a pause in the sequence rather than a break of it.
Resistance sits at 1.1766, the top of the range that has contained every session since late July, and at 1.17500 on the horizontal drawn from the July highs, the two forming one band.
Support is the 50-day at 1.16732, then Friday's low at 1.16598, then the shelf at 1.16331 that served as resistance through May and June before the July breakout turned it into support.
Our Pound to Euro forecast is for the correction to extend towards 1.16331 over the coming week and towards 1.16000 beyond it, with a daily close above 1.17500 the development required to end the sequence of lower highs that has run since the first week of July.
Stepping back and we see the medium-term uptrend that began at November 2025's low of 1.1280 survives all of this, with the trendline drawn from that low rising through the 1.1580 area and converging on 1.16000 through September.
That convergence is what makes 1.16000 the level that separates a correction from a reversal, because a break there takes out the horizontal and the trendline together, and until it happens the past seven weeks read as an orderly retracement inside a rising market.
UK Economy Provides a Fundamental Source of GBP Support
The UK offers two second-tier surveys this week, leaving global bond market gyrations as the primary driver.
Nevertheless, said second-tier data should reinforce the notion that the UK economy continues to do well, and that's a fundamental source of assurance for those wanting a stronger pound. Watch the CBI retail sales survey on Wednesday at 11:00 following July's reading of -26, and the Lloyds Business Barometer for August arrives on Friday at 00:01 after a previous month at 49.
Above: UK economy settles into a constructive rhythm.
Neither carries the weight to move Bank of England pricing, which leaves the Pound where it has spent all of August, taking direction from gilts, UK government bonds, and from the inflation picture sitting behind them.
July's consumer price index met expectations at 2.9% year-on-year, with the core measure delivering a firmer 0.2% monthly reading against estimates of 0.1%, and there was nothing in it to prompt a strategy rethink in Threadneedle Street.
That is why the release failed to arrest the Pound's slide against the Euro in the days that followed.
Where Next for the Pound? Get the Quarterly Forecast Report
Point forecasts, highs and lows from global banking partners, out to early 2027.
The medium-term consequence points the other way, because inflation is stuck above the 2.0% target and will stay there for some time, which supports UK bond yields and preserves a residual carry advantage for Sterling.
Expectations for the Bank to hold in September survived the past week intact, according to research from Lloyds Bank, which points to core inflation unchanged at 2.6% and moderate wage growth as evidence of limited second-round pressure.
The risk to Sterling is that the market still expects too much from the Bank of England as the swaps curve shows 50 basis points of Bank of England hikes (that's two hikes) over the next twelve months, which is too aggressive given the UK's negative output gap, says Elias Haddad, Global Head of Markets Strategy at Brown Brothers Harriman.
Eurozone Focus Falls on Inflation Readings
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Germany's IFO business climate survey opens on Tuesday at 09:00, with consensus at 87.2 after 86.6 in July, and the European Central Bank publishes the account of its July meeting on Thursday at 12:30 alongside M3 money supply data.
Spain's flash harmonised inflation reading for August is expected at 4.6% year-on-year on Friday at 08:00, up sharply from 3.9%, while Deutsche Bank Research looks for 4.42%.
France's flash print follows at 07:45, expected at 2.6% year-on-year, with the German lender forecasting 2.85%.
A September rate hike from the ECB is already fully discounted so the prints will set the scale of repricing beyond September rather than decide the September meeting.
The Spanish number is the likelier source of a surprise given the size of the jump already in consensus, and an upside reading starts pricing in further hikes in the future. On balance that would be consistent with the GBP/EUR's current spell of softness.
