GBP/EUR exchange rate spikes to fresh 20-month high before retreating

The pound appreciated on Tuesday, buoyed by a positive distributive trade index and hopes that the government may be able to avoid imposing more coronavirus restrictions this winter.

Meanwhile Sterling is mostly muted so far this morning, after retreating yesterday afternoon, with GBP/EUR subdued at €1.1853 and GBP/USD flat at $1.3764. GBP/CAD is rangebound at C$1.7048, while GBP/AUD and GBP/NZD hold steady at AU$1.8291 and NZ$1.9195 respectively.

Coming up, the publication of the UK’s Autumn Budget could inject fresh volatility into GBP exchange rates today.

What’s been happening?

The pound initially trended higher yesterday, aided by the publication of the Confederation of British Industry’s (CBI) distributive trades index as it reported a strong rise in UK retail sales volumes this month.

This uptick in Sterling sentiment was also supported by hopes that the UK may have passed the peak of its recent spike in coronavirus cases, and that this may allow the government to avoid imposing its ‘Plan B’ measures to control the spread of the virus.

However the upswing in GBP exchange rates proved short-lived, with Sterling faltering towards the end of the European session amid some profit taking.

The euro, meanwhile, faced some headwinds on Tuesday after Germany’s Economy Minister Peter Altmaier, announced that the government would be lowering its 2021 GDP forecasts from 3.5% to 2.6%.

At the same time, the US dollar fluctuated through yesterday’s European trading session amidst a mixed market mood.

What’s coming up?

Turning to today’s session, the publication of the UK’s government’s Autumn Budget is likely to act as a key driver for the pound today.

Chancellor Rishi Sunak is set to announce a rise in the national living wage and healthcare spending, but the focus for GBP investors will be on the Chancellor’s tax plans and what support he might offer to businesses recovering from the pandemic.

Also likely to influence Sterling sentiment will be the Office for Budget Responsibility’s (OBR) accompanying forecasts, with the pound potentially weakening if the OBR warns that growth in the fourth quarter is likely to be weaker than previously expected.

For USD investors the focus will be on the latest US durable goods orders, with the US dollar poised to weaken amidst forecasts order growth will have contracted in September.

Finally in the absence of any notable EUR data releases, and with the European Central Bank’s (ECB) latest interest rate decision looming, investors are likely to be reluctant to make any aggressive bets on the euro today.