Sterling's Strength Vs Euro Is Likely to Persist — Market Talk

What happened

ING analyst Chris Turner said sterling may pause after recently rising sharply against the euro, but he considers a major reversal too early to expect. He cited elevated energy prices, expected U.K. interest rates, unresolved French budget problems, and supportive U.K. economic and political developments.

Confirmed

Global impact / market context

If these conditions keep expectations for higher U.K. interest rates elevated, sterling could remain supported against the euro, making euro-priced purchases costlier for U.K. buyers and reducing the pound value of euro revenues. A sharp reversal is not currently Turner’s expectation.

Analyst inference

The article reports that the euro rose 0.2% to 0.8355 pounds after reaching a 19-month low of 0.8317 on Friday. Turner also said a possible Bank of England rate increase on Thursday looked nearly certain, not that it had occurred.

Confirmed

What to watch

1. Whether the Bank of England raises rates on Thursday, as Turner expects; a decision would clarify whether the interest-rate outlook cited as support for sterling is maintained. Analyst inference
2. Whether elevated energy prices continue to support expectations for higher U.K. interest rates into early next year, as Turner said they should. Analyst inference
3. Whether French budget problems remain unresolved and U.K. economic, fiscal, or EU-related developments continue to support sterling against the euro. Analyst inference

Evidence

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