Pound Sterling Expected to Gain Ground against Euro

The EURGBP pair awaits the latest employment figures from Germany, and the sterling has recently gained the upper hand.

A break of a critical uptrend on the weekly chart hints at further weakness, and weak jobs data from Europe’s largest economy could spur further gains in the pound.

EURGBP-Weekly Chart

eurgbp weekly chart

The euro vs pound sterling exchange rate is currently holding at 0.86, but this represents a break in the uptrend that began in July. The support for EURGBP comes at 0.84 in the days and weeks ahead.

The German employment release is expected to show a gain of 15k jobs, which is a weak point after last month’s 14k. The unemployment rate will likely stay at 5.5%, the benchmark for a surprise gain or loss that can move the pair.

However, the big driver for the EURGBP will be the Bank of England’s interest rate meeting on Thursday. The BoE is expected to make another 75bps move higher to 3%, but there is pressure on central banks to slow down. The Bank of England has also started making the first moves to wind down its QE bond holdings.

The Bank of England saw strong demand from investors on Tuesday for the first auction to sell government bonds from its £838 billion holdings that were amassed during the quantitative easing period. The central bank plans to sell 6 billion pounds of gilts across eight auctions throughout November and December. This is to cut bond holdings by £80 billion over a year with a combination of sales and allowing gilts to mature without reinvestment.

The BoE is the first central bank of the major economies to start making outright sales of its government bonds. That is partly because the average maturity (the time to expiry) is longer than those held by the Federal Reserve or the Bank of Canada.

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