Summary:
Sterling hit a two-year high against the euro on Monday, as investors bet the ECB would ease monetary policy faster than the BOE.
Sterling perched at its highest level in more than 2 years against the euro on Monday as investors bet the ECB would follow a faster monetary easing path than the BOE.
The Bank of England (BOE) recently cut interest rates for the second time this year, signaling that future reductions are likely to be gradual. This decision comes alongside the government's first budget, which is expected to lead to higher inflation and economic growth in the UK.
In response to the pound's surge and concerns over global geopolitical uncertainty, British companies have increasingly locked in currency hedges for longer periods in October, seeking to shield themselves from potential market volatility.
Chancellor Rachel Reeves also announced one of the largest fiscal loosenings in decades, revealing a significant borrowing increase that is likely to prompt the BOE to revise its inflation expectations for the years ahead.
Meanwhile, the eurozone economy could be more severely impacted than the UK's if Donald Trump enacts higher tariffs upon taking office on January 20. In this scenario, the European Central Bank (ECB) may be forced to cut rates faster than previously expected. Former ECB President Mario Draghi has emphasized the need for EU reforms to close the technology gap and advocates for a unified approach in trade negotiations with the US.
The euro traded below 50 SMA against the pound with few signs of strengthening. A major support level to watch is the low around 0.8202 hit in March 2022.
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