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

What happened

ING’s Chris Turner says sterling may consolidate after a sharp rise against the euro, but he sees no reason yet to expect a major reversal. He cites U.K. interest-rate expectations, unresolved French budget problems, economic surprises, fiscal policy and warmer EU ties as support for the pound.

Confirmed

Global impact / market context

A stronger pound makes euro-priced goods and energy cheaper for U.K. buyers, but can reduce the pound value of sales made in euros. If interest-rate expectations and other cited supports persist, import costs and exporters’ reported earnings could move in different directions.

Analyst inference

Sterling’s recent rise against the euro may pause, but Turner says a significant reversal is premature. He links support for sterling to expectations of higher U.K. interest rates, unresolved French budget problems, economic surprises, fiscal policy and warmer EU ties; these factors could influence currency positioning.

Analyst inference

What to watch

1. Check whether elevated energy prices continue to support expectations for higher U.K. interest rates through early next year, as Turner says they may. Confirmed
2. Watch for the Bank of England’s Thursday decision: Turner describes a potential 25-basis-point increase, a quarter of a percentage point, as highly likely. Confirmed
3. Track French budget developments and U.K. economic, fiscal and EU-relations news; changes in these supports could alter sterling’s relative appeal and the pressure on euro revenues. Analyst inference

Evidence

• Original source link unavailable