GBPEUR hit new highs after September PMI numbers illustrated the growth divergence between the UK and EU. Based on interest rate policy divergence between the Bank of England and its peers GBP has been on a stellar run as of late. This is making an even stronger case for GBP support from the markets.
Overnight, the People Bank of China introduced stimulus measures in a bid to bolster equities, so, to no surprise, Asian equities rose overnight; and European equity futures are suggesting a higher open this morning.
Over in Australia, the Reserve Bank elected to hold rates at 4.35% but leaned towards the hawkish end of the spectrum, commenting on the need to return inflation to its target levels and suggesting that the job market remains tight. Despite this, markets are still pricing in a total of 1.25% worth of rate cuts by the end of 2025.
*Daily move - against G10 rates at 7:30am, 24.09.24
** Indicative rates - interbank rates at 7:30am, 24.09.24
China's stimulus measures have ignited a surge in risk appetite this morning, which is set to ripple through the FX markets and bolster GBP.
Given the disappointing numbers that have come out of Europe this morning in the form of Germany's IFO numbers we wouldn't be surprised for GBP to stretch its gains further over EUR. The obvious question amongst clients now is “can GBP rise even further?"
Fundamentally, it makes sense for GBP to be supported on the divergence of interest rate policies, but the question is: how much of this is priced in? We have the budget coming at the end of October and this could cause some headwinds for the currency. Relatively speaking, from a chart’s perspective, GBP is looking overvalued, which could signal an imminent pullback as markets take profits on GBP gains. But ultimately there would need to be some kind of catalyst for the shift to take place. For now, clients would do well to take advantage of the current levels and consider their options for hedging some of their future currency needs.
Our team of currency experts are here to help you get more from your money when making cross-border payments. We will work with you to understand your payment needs and offer specialised guidance on the best options available to you. Over the last 19 years we’ve helped over a million customers and last year alone processed over £12bn. We’re tried and trusted, and we’re ready to help you.
Have a great day.
