- Pound (GBP) is falling to a multi-year low
- Goldman Sachs revises its BoE rate outlook lower
- Euro (EUR) is rising for a third day
- The ECB is expected to leave rates unchanged
The Pound-Euro (GBP/EUR) exchange rate is falling for a third straight day. The pair fell 0.53% in the previous session, settling on Tuesday at €1.1391. It traded between €1.1375 and €1.1464. At 11:00 UTC, GBP/EUR trades -0.28% at €1.1359.
The pound has fallen to fresh multi-year lows against the euro and is also trading at three-month lows against the US dollar, amid rising concerns about the UK’s fiscal outlook.
The UK’s budget watchdog is expected to cut the productivity forecast by a more than expected 0.3%. This could potentially lead to a £20 billion hit to public finances, meaning Rachel Reeves will need to fill a larger fiscal gap than previously feared.
This news comes ahead of Reeves’s budget on November 26th, where she is expected to hike taxes and cut spending.
Meanwhile, the market is pricing in a 35% chance of the Bank of England cutting interest rates at next week’s meeting. Analysts at Goldman Sachs have revised rate-cut expectations lower to 3% by July, with a 25-basis-point reduction in November.
The EUR is rising against the pound as attention turns to the ECB rate decision tomorrow. At 1315 GMT, the ECB will announce its rate decision and is expected to leave the rate unchanged at 2% for a third straight meeting, after eight rate cuts since mid-2024.
With inflation in the region close to the 2% target at 2.2% year-on-year in September and signs that regional growth is looking a little more positive than last year, the ECB has little reason to act.
The current rate is considered supportive of the economy, which, combined with the fiscal support that is coming in many countries, will likely lift growth in 2026.
Tomorrow’s ECB meeting will almost certainly be the most uneventful of the central bank meetings this week, which include the Fed, the BoC and the BoJ.