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Pound sterling is set to consolidate against the euro beneath a level it has yet to close above, although UK growth data and France's budget troubles should keep any setback shallow.
The pound's advance against the euro has stalled at 1.20, a level the pair has tested repeatedly since late October without recording a daily close above it.
The pound-to-euro exchange rate trades at 1.1990 at the start of the week: the pair rose as high as 1.2016 on 30 October and 1.2015 on 5 November, falling back beneath 1.20 by the close on both occasions.
The pound has kept climbing against the euro despite repeated calls for a meaningful pullback in Pound Sterling Live's Week Ahead Forecasts on overbought readings.
This week's forecast looks for consolidation beneath 1.20, with Thursday's UK GDP figures the main calendar test for the pair.
From a technical perspective, the relative strength index (RSI) in the lower panel of the chart reads 75, still in overbought territory, although it has turned lower from the mid-80s it reached in late October:
What does an overbought reading denote? An RSI above 70 tells us buying has run ahead of the market's recent pace, which tends to precede a pause or a pullback while the gains are digested. A strong trend can hold the RSI above 70 for weeks, as GBP/EUR has done since early October.
The 1.20 level, the purple line, is the barrier that matters, because GBP/EUR has closed beneath it in every session since the rally reached it.
Graphical horizontal resistance at 1.2016, the orange line, marks the 30 October high, which the pair retested after the Bank of England's rate hike on 5 November before falling back.
The 21-day moving average, the blue line, is rising steeply and sits at 1.1930, around 0.5% beneath the market.
Pound Sterling Live's mean-reversion modelling holds that a gap of that size closes through a pullback or a consolidation.
With the 21-day climbing at its current pace, a week of sideways trade beneath 1.20 would close the gap without the pound giving up much ground.
Pound Sterling Live looks for GBP/EUR to hold between 1.1930 and 1.20 this week.
A first daily close above 1.20 would signal that the rally has resumed, with 1.2016 the next test.
A daily close beneath the 21-day would signal a deeper consolidation and change the near-term Pound to Euro forecast.
Further out, Pound Sterling Live expects GBP/EUR to settle into a higher range that incorporates 1.20, with its upper reaches in the mid-1.20s.
Last week's Week Ahead Forecast looked for GBP/EUR to hold near 1.20, and the pair closed every session between 1.1983 and 1.1997, beneath the level.
UK GDP Must Beat Consensus for the Pound to Close Above 1.20
The pound needs a fresh catalyst to close above 1.20, and Thursday's UK GDP figures are the week's main calendar event for the pair.
The Office for National Statistics releases September and third-quarter GDP at 07:00 on Thursday, with consensus looking for growth of 0.7% in the quarter and no change in September.
Under the playbook, a print above consensus would lift the pound.
A miss would weigh on it.
Economists at Lloyds Bank Market Insights forecast growth of 0.8%, which would make the third quarter the UK's strongest since early 2022 and put it above the Bank of England's 0.7% estimate.
Lloyds expects growth to slow from that pace, "higher energy prices are set to erode household purchasing power and increase business costs," say economists at the bank.
Strong growth would add to bets on a second Bank of England hike on 17 December, which money markets price at slightly better than even, according to Lloyds.
Governor Andrew Bailey speaks on Monday evening, with Deputy Governor Clare Lombardelli and Chief Economist Huw Pill following on Tuesday.
Pill set out his view in the minutes of last week's decision, "a single 25-basis point hike is unlikely to be sufficient," says the Bank's Chief Economist.
"Unanimity at the Bank of England over the need to hike does not imply agreement over what comes next," says Hann-Ju Ho, Senior Economist at Lloyds.
Hawkish signals from the speakers would support the pound.
"The backing by the BoE serves as a strong GBP-floor going forward," says KBC, the Belgian bank.
Valuation Models Show the Pound Is Stretched Against the Euro
ING judges the pound expensive against the euro even after allowing for French risk, "EUR/GBP continues to trade sharply below its short-term fair value, by around 2.6-2.8% according to our models," says Francesco Pesole, FX Strategist at ING.
Pesole sees a return to 0.8400 in EUR/GBP (GBP/EUR at 1.1905) as the most realistic move in the coming weeks.
Crédit Agricole's short-term valuation model, FAST FX, puts fair value for EUR/GBP at 0.8469 (GBP/EUR at 1.1808), as Pound Sterling Live reported.
The Euro Remains Exposed to France's Budget Troubles
Any setback for the pound against the euro should be shallow because France's budget troubles continue to weigh on the single currency.
Eurozone third-quarter GDP on Friday, where consensus looks for growth of 0.4%, and final October inflation figures for Germany and France are second-tier releases.
Eurozone finance ministers meet on Monday to discuss candidates to succeed Christine Lagarde as ECB President, with Spain's Pablo Hernández de Cos and the Netherlands' Klaas Knot the only two officially running.
ING expects a reaction in the euro to the choice, with Knot a hawk and de Cos a dove, although "the impact on the euro may prove relatively contained and short-lived," says Pesole.
Under the playbook, a hawkish appointment would support the euro.
The gap between French and German ten-year borrowing costs, the favoured measure of French stress, stood above 155 basis points on 4 November, against around 70 basis points at the end of 2025.
French lawmakers vote on the 2027 budget on 17 November.
Crédit Agricole does not expect market uncertainty over the French budget to abate before mid-December, "the contrast between the UK's fiscal discipline and the political & fiscal upheaval in France remains a key support for the GBP vs EUR," says the French bank.
Pound Sterling Live's Pound to Euro forecast looks for GBP/EUR to consolidate beneath 1.20 this week, with France's fiscal stress keeping the pair on course for a first daily close above the level in the weeks ahead.
