STORY LINK Pound to Euro Week Ahead Forecast: GBP/EUR’s Future Uncertain Among Analysts

RBC Capital Markets (RBC) forecasts that the Pound to Euro (GBP/EUR) exchange rate will weaken gradually to 1.1240 on a 12-month view.

In contrast, Barclays expects GBP/EUR to strengthen to 1.25.

GBP/EUR was held in relatively tight ranges during the week and settled just above 1.1850.

Barclays is positive on the UK outlook; “Demand resilience has been in evidence across recent data releases, supporting the case for a slow and relatively shallow cutting cycle by the MPC that maintains the pound’s carry advantage. Supply-side gains are also likely given the new UK government’s intention to pursue a closer EU-UK relationship.”

RBC admits that yields will tend to favour the Pound, but will not be sufficient to support the UK currency; “Although our expectation for a shallow BoE rate cutting cycle suggests markets are overpricing rate cuts over the next 12m, and we expect the UK will retain a yield advantage in G10, we think GBP faces more downside than upside risk, as the most recent market rout showed in early August.”

RBC notes that there are substantial long Pound positions amongst global traders and that the currency is overvalued from an historical perspective.

It added; “A currency being overvalued does not automatically mean that the currency will fall, but if any concerns about the growth outlook or fiscal credibility rise or there is an external risk-off shock, then GBP is vulnerable.”

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UK GDP was unchanged in July for the second successive month.

HSBC commented; “None of this is good news for an economy which relied on government spending and inventories for growth in Q2.”

There are strong expectations of tax increases in the October budget.

Barclays expects only a limited and short-lived Pound setback; “Perceived anti-growth measures such as tax hikes and fiscal tightening tend to weigh on the pound; however, their size (c.0.5-1% of GDP) does not appear large enough to derail sterling’s positive momentum.”

Credit Agricole sees barriers to Pound gains; “In all, we believe that many positives are already in the price of the overbought GBP by now and it could take hawkish BoE surprises or evidence of stickier inflation or more resilient retail sales to see the currency gaining more ground.”

MUFG sees Pound vulnerability in the fourth quarter; “We do not expect the BoE to cut rates again until the November MPC meeting, but there is an increasing likelihood that the BoE could deliver back-to-back cuts in November and December that could trigger some reversal of pound strength if the BoE shifts to a faster pace of cuts later this year.”

The ECB cut the deposit rate by 25 basis points to 3.50% at the latest policy meeting, in line with strong market expectations.

The central bank continued to insist that it was data dependent with only a slow rate of easing and the Euro was resilient.

Unicredit commented; “We remain confident with our forecast that the deposit rate will decline by 25bp per quarter throughout 2025, with the next move due in December.”

Credit Agricole commented on potential economic risks; “the EUR could suffer if Eurozone stocks weaken while peripheral spreads start to widen once again.

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• At the beginning of this week, the GBP/USD pair was trading around $1.3158, up by about 0.2% from the previous Friday’s levels.
• Clearly, this was driven by a weaker US dollar despite signs of stubborn producer prices in the United States.
• According to economic data, the latest US Producer Price Index data came in stronger than expected, rising 0.2% in August, up from a downwardly revised flat reading in the previous month.

However, growing concerns that a weak US Labor market could push the Federal Reserve into an aggressive easing cycle in the near term have undermined the US dollar’s upside potential. On the other hand, the latest initial US jobless claims report rose as expected to 230,000, revealing another increase in the number of unemployed US citizens claiming unemployment benefits.

The figure held above averages seen at the start of the year, reinforcing concerns about a weak US labour market in the wake of a bleak US payrolls report in August. As a result, this offset any potential shifts in the current market consensus around multiple US interest rate cuts by the Federal Reserve this year, as the spectre of a US hiring slowdown weighed on the US dollar.

Elsewhere, a slight decline in US Treasury yields put further pressure on the US dollar, leaving the greenback languishing near recent lows.

The Pound Sterling (GBP) Fluctuates Amid Data Quiet

In contrast, the pound (GBP) has struggled to attract investor interest recently amid a lack of fresh US data. Overall, the lack of fresh information has led to uncertainty in market sentiment, which in turn has dampened investor interest in sterling, which is now more risk sensitive. In addition, the impact of disappointing UK growth figures continues to weigh on sterling, with no new factors to offset this effect.

Commenting on this, Chris Turner, global markets analyst at ING, said: “UK interest rates have come down quite a bit so far, with 2-year GBP swap rates down by around 30bps. It is unclear whether this is a result of weak UK GDP data or simply a belief that interest rates will come down across the world and that the UK should not be an exception – despite the silence from the Bank of England.”

Despite recent speculation that the BoE may introduce a less aggressive policy easing cycle than other major central banks, the combination of global political shifts and slower economic growth in the UK appears to be limiting any potential recovery for sterling.

GBP/USD Forecast: Is Risk Appetite Influencing Movement?

Looking ahead, we may see the data-free end of the week in both the US and the UK affect global risk dynamics and the movement of the currency pair. Accordingly, any gloomy trade could support the US dollar as a safe haven, while an improvement in market sentiment could boost the risk-sensitive pound sterling against its safer competitors. As far as the UK is concerned, the recent RICS housing index improved sharply to 1 for August from a previously revised -18, which was well above consensus forecasts and the strongest reading since October 2022.

UBS commented on the monetary policy decision this week, saying, “We expect a majority of Monetary Policy Committee members to vote to keep interest rates unchanged next week by a 7-2 margin.”

In the UK, too, attention will be focused on upcoming inflation data and the Bank of England’s policy meeting. Widely, the BoE is expected to maintain interest rates, after cutting rates by 25 basis points last month. The main factor influencing the BoE’s decision will be UK inflation data, due out on Wednesday, just a day before the central bank announces policy. Annual inflation is expected to remain steady at 2.2% in August, remaining above the Bank of England’s 2.0% target. Later in the week, markets will also be closely watching retail sales figures and public sector net borrowing data for further economic insights.

Technical forecasts for the GBP/USD pair today:

With the recent gains of the GBP/USD, the currency pair has returned to its broader upward trend and the 1.3250 resistance on the daily chart will remain the most prominent to confirm the bulls’ strong control of the trend. Technically, we expect the GBP/USD to remain in its current trajectory until the markets and investors react to the announcements of both the Bank of England and the US Federal Reserve this week. The more hawkish the bank, the more supportive it will be for its currency, and we will see. Conversely, the psychological support of 1.3000 will remain the most important for a reversal of the current bullish outlook.

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US Retail Sales and Economic Outlook

In addition to Japan’s data, US retail sales later in the session on Tuesday could also influence USD/JPY movements.

Economists expect retail sales will increase by 0.2% in August, down from a 1.0% rise in July.

Accounting for 60% of GDP, better-than-expected figures may boost expectations of a soft US economic landing and strengthen the US dollar. A pickup in consumer spending could push the US dollar toward 142 ahead of Wednesday’s Fed interest rate decision. Easing fears of a hard US economic landing may temper expectations of aggressive Fed rate cuts to support the US economy.

Short-term Forecast for USD/JPY

USD/JPY trends will likely depend on Bank of Japan commentary and Wednesday’s Fed interest rate decision. Hawkish comments from the BoJ and a more dovish-than-expected Fed rate path may drag the USD/JPY below 139.500.

However, investors should also consider key economic indicators from Japan and the US that could fuel USD/JPY volatility.

Investors should remain alert with Wednesday’s Fed interest rate decision looming. Monitor real-time data, central bank insights, and expert commentary to adjust your trading strategies accordingly. Stay updated with our latest news and analysis to manage USD/JPY volatility.

USD/JPY Technical Analysis

Daily Chart

The USD/JPY remains well below the 50-day and 200-day EMAs, affirming bearish price signals.

A USD/JPY break above the 141.032 resistance level could support a move toward the 142.500 level. Furthermore, a USD/JPY return to the 142.500 level may give the bulls a run at the 143.495 resistance level.

Japan’s Tertiary Industry Activity Index, Bank of Japan commentary, and US retail sales numbers require consideration.

Conversely, a drop below the September 16 low of 139.576 could bring the 137.712 support level into play.

The 14-day RSI at 31.12 suggests a USD/JPY drop below 140 before entering oversold territory.

• EUR/JPY remains in a bearish bias despite recent recovery, with momentum flattening and potential consolidation ahead.
• A break above 157.00 could target resistance at 157.46 (Tenkan-Sen) and 158.49 (Senkou Span A).
• For a bearish continuation, EUR/JPY must fall below 155.14, with the YTD low at 154.39 as the next support level.

The EUR/JPY recovered some ground on Monday, registering gains of over 0.40% and climbing past the 156.00 figure. As Tuesday’s Asian session begins, the cross-currency pair exchanges hands at 156.51, virtually unchanged.

Last week, the European Central Bank (ECB) lowered rates by 0.25%, yet signaled that it would most likely pause at the October meeting due to the lack of data policymakers would have at their disposal. This boosted the Euro, though the jump could be short-lived as a Bank of Japan (BoJ) monetary policy decision looms.

EUR/JPY Price Forecast: Technical outlook

The pair remains downward biased despite recovering from an over 4.70% fall. The momentum is bearish but has flatlined, hinting that consolidation lies ahead. That said, the EUR/JPY could remain range-bound within a 150-pip volatility range.

If EUR/JPY climbs above 157.00, the next resistance will be the Tenkan-Sen at 157.46. A breach of the latter will expose the Senkou Span A at 158.49, followed by the Kijun-Sen at 159.52.

Conversely, for a bearish continuation, EUR/JPY must drop below the September 16 low of 155.14. The next support would be the year-to-date (YTD) low of 154.39.  

EUR/JPY Price Action – Daily Chart

• GBP/USD nears 1.3239, with potential to test the YTD high at 1.3266 and March 2022 peaks.
• Bulls bought the dip at 1.3001, fueling the rally to current levels.
• Failure at 1.3200 could see a pullback towards 1.3150, with further downside risks at 1.3100 and 1.3044.

The Pound Sterling rallied in early trading during the North American session against the Greenback, registering gains of over 0.60% and hitting a five-day peak of 1.3214. At the time of writing, the GBP/USD trades at 1.3199.

GBP/USD Price Forecast: Technical outlook

The GBP/USD has risen sharply, as bullish momentum picked up, as portrayed by the Relative Strength Index (RSI). In addition, bulls buying the dip at 1.3001 lifted spot prices to the current exchange rate.

Still, GBP/USD remains shy of testing the September 6 high of 1.3239. In that outcome, the next resistance level would be the year-to-date (YTD) high at 1.3266. Once surpassed, the daily high on March 23, 2022, would be up for grabs at 1.3298 before the pair hits the March 1, 2022, high at 1.3437.

Conversely, if GBP/USD stands below 1.3200, this could exacerbate a re-test of the 1.3100 figure. But firstly, sellers need to challenge 1.3150. Further losses lie at 1.3044, and the July 17 high turned support.

GBP/USD Price Action – Daily Chart

US Dollar vs Japanese Yen Technical Analysis

The U.S. Dollar has broken down a bit during the early hours on Monday to test the 140 yen level. This is an area that I think a lot of people will be paying attention to. And it’ll be interesting to see if there’s any chance of a bounce. We are pretty much right on the edge of a trend line at the same time as being at this large round psychologically significant figure.

But a lot of this comes down to what happens on Wednesday and Friday for the matter. Let us not forget that not only do we have an FOMC interest rate decision on Wednesday and the press conference, which of course is important. But we also have the Friday Bank of Japan interest rate decision and press conference. So that could leave this market the epicenter of a lot of noise this week.

Because of this, I think it’s interesting to pay close attention to this market. And if we can turn around and recapture the 142 yen level and the Bank of Japan isn’t as hawkish as people think they’re going to be. This could be the end of the sell-off. On the other hand, if we continue to see a lot of negativity here, I think that is a general signal that risk appetite will crater, and you will see it be a situation where everything sells off given enough time. So this is the epicenter of risk appetite in the currency markets.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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(MENAFN– Daily Forex) At the beginning of this week, the GBP/USD pair was trading around $1.3158, up by about 0.2% from the previous Fridayu0026#39;s levels, this was driven by a weaker US dollar despite signs of stubborn producer prices in the United States to economic data, the latest US Producer Price index data came in stronger than expected, rising 0.2% in August, up from a downwardly revised flat reading in the previous month, growing concerns that a weak US labor market could push the federal Reserve into an aggressive easing cycle in the near term have undermined the US dollaru0026#39;s upside potential. On the other hand, the latest initial US jobless claims report rose as expected to 230,000, revealing another increase in the number of unemployed US citizens claiming unemployment benefits figure held above averages seen at the start of the year, reinforcing concerns about a weak US labour market in the wake of a bleak US payrolls report in August. As a result, this offset any potential shifts in the current market consensus around multiple US interest rate cuts by the Federal Reserve this year, as the spectre of a US hiring slowdown weighed on the US dollar, a slight decline in US Treasury yields put further pressure on the US dollar, leaving the greenback languishing near recent lows Pound Sterling (GBP) Fluctuates Amid Data QuietIn contrast, the pound (GBP) has struggled to attract investor interest recently amid a lack of fresh US data. Overall, the lack of fresh information has led to uncertainty in market sentiment, which in turn has dampened investor interest in sterling, which is now more risk sensitive. In addition, the impact of disappointing UK growth figures continues to weigh on sterling, with no new factors to offset this effect on this, Chris Turner, global markets analyst at ING, said: u0026ldquo;UK interest rates have come down quite a bit so far, with 2-year GBP swap rates down by around 30bps. It is unclear whether this is a result of weak UK GDP data or simply a belief that interest rates will come down across the world and that the UK should not be an exception u0026ndash; despite the silence from the Bank of England.u0026rdquo;Despite recent speculation that the BoE may introduce a less aggressive policy easing cycle than other major central banks, the combination of global political shifts and slower economic growth in the UK appears to be limiting any potential recovery for sterling. Top Forex Brokers 1 Get Started 74% of retail CFD accounts lose money Read Review BrokerGeoLists({ type: u0027MobileTopBrokersu0027, id: u0027mobile-top-5u0027, size: 5, getStartedText: u0060Get Startedu0060, readReviewText: u0060Read Reviewu0060, Logo: u0027broker_carrousel_iu0027, Button: u0027broker_carrousel_nu0027, });GBP/USD Forecast: Is Risk Appetite Influencing Movement?Looking ahead, we may see the data-free end of the week in both the US and the UK affect global risk dynamics and the movement of the currency pair. Accordingly, any gloomy trade could support the US dollar as a safe haven, while an improvement in market sentiment could boost the risk-sensitive pound sterling against its safer competitors. As far as the UK is concerned, the recent RICS housing index improved sharply to 1 for August from a previously revised -18, which was well above consensus forecasts and the strongest reading since October 2022 commented on the monetary policy decision this week, saying, u0026quot;We expect a majority of Monetary Policy Committee members to vote to keep interest rates unchanged next week by a 7-2 margin.u0026quot;In the UK, too, attention will be focused on upcoming inflation data and the Bank of Englandu0026rsquo;s policy meeting. Widely, the BoE is expected to maintain interest rates, after cutting rates by 25 basis points last month. The main factor influencing the BoEu0026rsquo;s decision will be UK inflation data, due out on Wednesday, just a day before the central bank announces policy. Annual inflation is expected to remain steady at 2.2% in August, remaining above the Bank of Englandu0026rsquo;s 2.0% target. Later in the week, markets will also be closely watching retail sales figures and public sector net borrowing data for further economic insights. Top Forex Brokers 1 Get Started 74% of retail CFD accounts lose money Read Review BrokerGeoLists({ type: u0027MobileTopBrokersu0027, id: u0027mobile-top-5u0027, size: 5, getStartedText: u0060Get Startedu0060, readReviewText: u0060Read Reviewu0060, Logo: u0027broker_carrousel_iu0027, Button: u0027broker_carrousel_nu0027, });Technical forecasts for the GBP/USD pair today:With the recent gains of the GBP/USD, the currency pair has returned to its broader upward trend and the 1.3250 resistance on the daily chart will remain the most prominent to confirm the bullsu0026#39; strong control of the trend. Technically, we expect the GBP/USD to remain in its current trajectory until the markets and investors react to the announcements of both the Bank of England and the US Federal Reserve this week. The more hawkish the bank, the more supportive it will be for its currency, and we will see. Conversely, the psychological support of 1.3000 will remain the most important for a reversal of the current bullish outlook.

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EUR/USD Current price: 1.1120

• Looming Federal Reserve’s announcement undermines demand for the US Dollar.
• Eurozone and United States data came in better than anticipated.
• EUR/USD is technically bullish and could reach the 1.1150 region in the near term.

The EUR/USD pair surged to 1.1132 on Monday, its highest in over a week. The pair trades nearby amid the broad US Dollar’s weakness, fueled by speculation the Federal Reserve (Fed) will trim interest rates when it meets this week. The Fed is scheduled to announce its decision on monetary policy next Wednesday, and market participants have long ago priced in a reduction of at least 25 basis points (bps). There is still a minor chance that the central bank will go for a more aggressive 50 bps cut, a decision that could further undermine demand for the USD.

Meanwhile, a firmer Japanese Yen (JPY) weighed on the Greenback at the beginning of the day. Central banks’ imbalances drove the USD/JPY to 139.54, a fresh multi-month low, as the Bank of Japan (BoJ), which also meets this week, is expected to move in the opposite direction of the Fed and hike interest rates.

Data-wise, the Eurozone released the July Trade Balance, which posted a seasonally adjusted surplus of €15.5 billion, below the June one at €17.0 billion. As for the United States (US), the country released the NY Empire State Manufacturing Index, which drastically improved to 11.5 in September from -4.7 in the previous month. As a result, the USD remained under selling pressure. There are no other relevant figures scheduled for the rest of the day.

EUR/USD short-term technical outlook

Technically, the EUR/USD pair is bullish. The daily chart shows it hovers near the intraday high after recovering above a bullish 20 Simple Moving Average (SMA). The latter provides near-term support in the 1.0990 price zone. At the same time, technical indicators aim north, although with uneven strength and the Momentum indicator still below its 100 line, somehow limiting the upward potential. Finally, the 100 SMA grinds higher above a flat 200 SMA, suggesting persistent buying interest.

In the near term, and according to the 4-hour chart, the bullish momentum eased, although the risk remains skewed to the upside. EUR/USD is developing above all its moving averages, with only the 20 SMA heading north, trapped between flat 100 and 200 SMAs. Technical indicators, in the meantime, have lost their upward strength after reaching overbought readings, now hovering directionless near their intraday peaks.

 Support levels: 1.0990 1.0950 1.0910

Resistance levels: 1.1050 1.1090 1.1140

• The dollar lost around 1.3% against the yen last week.

• News outlets revealed a high chance for a 50 bps Fed rate cut.

• The Bank of Japan will meet on Friday.

The USD/JPY forecast indicates further declines for the dollar due to a surge in Fed rate cut expectations. At the same time, the yen was on the front foot as investors looked forward to the Bank of Japan policy meeting. 

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The dollar lost around 1.3% against the yen last week after reports that the Fed might consider a more significant rate cut at this week’s meeting. Initially, markets were convinced that policymakers would vote for a 25 bps cut. Inflation was slightly higher than expected, and the labor market was not in such a terrible shape. Therefore, the US central bank could afford to start cutting rates slowly. 

However, this outlook shifted on Friday when news outlets revealed a high chance for a 50 bps rate cut. Consequently, investors moved to price a higher chance for such an outcome, weighing on the dollar. By Monday, investors were pricing a 59% of a 50 bps rate cut. At the same time, total cuts in 2024 rose to 125 bps. 

The Fed is poised to cut rates on Wednesday. However, traders are still betting between a 25 and a 50 bps rate cut. Therefore, whichever size the central bank picks will likely increase market volatility.

On the other hand, the Bank of Japan is set to meet on Friday this week. Although the BoJ might keep rates unchanged, the messaging might be hawkish. Recent remarks from policymakers have shown that they are willing to keep hiking interest rates. 

USD/JPY key events today

With a holiday in Japan and no key events in the US, the price might extend last week’s move.

USD/JPY technical forecast: Bullish RSI divergence fails 

On the technical side, the USD/JPY price has made a new low in the downtrend after breaking below the 141.01 support level. This has strengthened the bearish bias as the price has fallen well below the 30-SMA with the RSI in the oversold region. 

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Previously, the price had paused at the 141.01 level. Here, the RSI indicated a bullish divergence, signaling a reversal. However, when bulls took over, they failed to breach the 30-SMA, a sign that bears remain in the lead. This downtrend might soon reach the 139.02 support level.

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