Sterling Slips as USD Strengthens, Euro Retreats

Here’s this week’s overview of the Euro and Sterling:

Sterling

Sterling fell by 0.6% to 1.312 against USD but remains near its 13-month high of 1.325. Stronger than expected US economic data on Thursday helped boost the American currency.

The Pound rallied over the previous two weeks, supported by investor expectations that the Bank of England will cut rates less sharply than the Federal Reserve in the coming months, after making its first reduction in August.

Key US data releases this week will likely decide the direction of GBP-USD with few data releases from the UK.

Euro

The Euro dropped by 1% against the dollar last week and ended the week trading at 1.104, retreating sharply from its 2024 highs.

We did note previously the rally in the Euro was not driven by fundamental economic data and this was borne out in the last week against a strengthening dollar.

Inflation now sits at 2.2% annually, just 0.2% off the central bank target. This, teamed with a weak growth picture and an already wide interest rate differential, leaves the common currency vulnerable to upside surprises in US data.

This week’s payrolls report out of the US will be a key release as we head towards central bank monetary policy meetings for the FED and the ECB this month.