Monthly Wrap: GBP – Pound strengthens on BoE policy divergence 

Key takeaways: 

– Pound firms as BoE keeps rates on hold 

– UK data continues to impress 

– GBP Monthly lows: €1.17, $1.30, AU$1.92, NZ$2.10, C$1.76 

– GBP Monthly highs: €1.20, $1.34, AU$1.96, NZ$2.13, C$1.81 

The pound was met by strong support through September, with GBP/EUR and GBP/USD surging to 28 and 30-month highs, respectively.  

Sterling’s strength was largely underpinned by the Bank of England (BoE). In contrast to both the Federal Reserve and European Central Bank (ECB), the BoE kept interest rates on hold following its September policy meeting.  

This decision, coupled with signals from the BoE that it is likely to unwind its monetary policy at a slower pace than its peers, bolstered investor confidence in the currency.  

The pound was also supported by a series of upbeat UK economic data releases. This data both tempered BoE rate cut expectations and stoked optimism over the UK’s economic outlook. 

However, Sterling’s ascent didn’t come without challenges. The new Labour government continued to warn of tough economic times ahead, dampening this optimism and raising questions over the UK’s growth prospects. 

While the BoE won’t meet again until November, GBP investors will keep an eye on UK economic releases in the coming weeks as they seek to gauge how aggressively the bank might cut rates in the coming months. 

However, the primary focus for GBP investors will be the unveiling of the UK’s Autumn Budget.  

The Labour government has repeatedly warned of the tough decisions it will have to make to fill the fiscal ‘black hole’ reportedly left by the previous Conservative government. 

This has led to widespread speculation that Reeves’s Budget will contain tax hikes and spending cuts aimed at making up the shortfall in public finances. Concerns over which could weigh heavily on the pound at the end of the month.