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Pound sterling can build on recent gains against the euro in a week dominated by important UK data and a Bank of England decision.
The pound-to-euro exchange rate has won back everything it lost in the first days of September and pushed through the shelf that gave way on the way down, with Monday adding a run to 1.1708 before the market settled back.
A week ago we forecast a corrective bounce towards 1.1648 and then the 21-day at 1.1675, treating both as resistance inside a decline with further to run.
Both objectives were reached and both were cleared, and the market has spent the sessions since holding above them. That turns what we called resistance into support and takes the decline off the table while it lasts.
Above: GBP/EUR daily chart. Image © Pound Sterling Live, chart created with TradingView.
The 21-day moving average at 1.1664 has fallen since the middle of July and it turned back every recovery attempt through August. The market has now climbed above it and held there, which takes away the cap that defined the whole decline.
The 100-day at 1.1632 has risen without a break since April and it caught the fall in the first days of September. A rising long-term average that stops a decline is doing the job the medium-term uptrend needs of it, and this one has now done exactly that.
1.1648 floored the market through August, gave way at the start of September and has now been won back. A level recovered after a break works as support from above, which puts the first floor of this recovery just beneath the 21-day.
Monday's session ran to 1.1708 before giving most of the gain back. The long upper wick says sellers met the move, and it says just as clearly that buyers were willing to chase it well above the open to find them.
This week we forecast the recovery to extend towards Monday's high at 1.1708 and then 1.1750, with 1.1648 and the averages beneath it the support this move can afford to lose. A daily close back beneath the 100-day at 1.1632 would end it and put 1.1600 in play, and our Pound to Euro forecast turns properly constructive once the 21-day flattens.
Jobs, Inflation and Bank of England
Tuesday's wage data feeds the Bank of England's judgement on second-round effects, Wednesday's inflation print lands the day before the vote, and Thursday the Bank decides with both in hand.
The labour market:
Consensus looks for private sector wage growth unchanged at 2.8% in the three months to July, unemployment unchanged at 4.9%.
Transmission into GBP: Wage growth above consensus argues inflation has a domestic engine the Bank cannot wait out, lifts gilt yields and Sterling. A miss does the reverse. The specific thing the MPC is reading this for is second-round effects: easing wage growth is the evidence base for the hold, so an upside surprise here is what starts the week moving against the doves.
Stable data at consensus is consistent with a hold and leaves Wednesday carrying the week.
Wednesday's August CPI:
Consensus expects headline inflation to edge up from 2.9% to 3.0% compared to the same month last year.
Transmission into GBP. An inflation print above consensus argues the economy can carry higher rates, lifts gilt yields and Sterling with them; a miss does the reverse. The asymmetry this week is that the print lands the day before the decision. At 3.1% the hold is comfortable. At 3.3% the three dissenters have their argument handed to them the evening before they vote, and the market will reprice the November meeting rather than this one.
The Bank of England:
Consensus: hold at 3.75% for a sixth straight meeting, on a 6-3 vote, with Greene, Mann and Pill backing a hike. BofA and BBH agree on both outcome and split.
Select Views:
- BofA: hold through 2026, cut November 2027, but hike risks have become more pronounced. They expect the tone to shift more hawkish than July, flagging greater upside inflation risks with the door kept open, while stressing the Bank is unlikely to out-hawk market pricing.
- Pantheon moved on Friday to 25bp hikes in November 2026 and February 2027, citing solid growth, surging energy prices and an expected strong August print. Their preview title is the argument in six words: holding on for dear life and signalling a hike.
- BBH argues the curve is too hot. Swaps imply 125bp of hikes to 5.00% over twelve months, against the negative output gap, a policy rate already near the top of the 2% to 4% neutral estimate, and tighter fiscal policy ahead. That leaves GBP exposed to a dovish repricing.
Transmission into GBP. The hold is priced, so Sterling moves on the vote split and the statement. A 7-2 split or softer language on upside risks reads dovish and unwinds part of the 125bp. An 8-1 or a shift in the guidance toward an explicit hike signal validates it. On BBH's reading the risk is skewed toward the first.
The Bank Consensus, Without the Terminal
The median, mean, highest and lowest from the October survey update, plus named point forecasts out to 2027.
Free information pack, issued by World Wide Currencies.
