Sterling holds near 16-month high vs euro, budget and BoE in focus
TLT•Sterling edged lower against the euro after reaching its highest level in about 16 months, while rising expectations for Bank of England rate hikes supported the pound. Investors are also watching the October 28 UK budget and the outlook for trade relations with the European Union.
1. Sterling moves against euro
Sterling was down 0.05% at 84.48 pence per euro, after touching 84.45 pence on Monday, its highest level since June 2025. The pound rose 0.19% against a weakening dollar to $1.334.
2. Rate outlook supports pound
ING forex strategist Francesco Pesole said the Bank of England had signalled it was prepared to raise rates, and said one or two hikes were increasingly likely, though he considered market expectations for 2027 too hawkish. BoE policymaker Megan Greene said an upward revision to the IMF’s forecast for UK economic growth this year added to signs that interest rates were not very restrictive.
3. Budget remains a risk
The October 28 budget is a potential downside risk for sterling. Rabobank said sterling net short positions rose for a third straight week to their highest since June, while euro net shorts reached their highest since February 2020. Prime Minister Andy Burnham said he would press for a deal to improve EU trade relations at a summit next month.
