Monthly Market Forecast

GBP

GBP/EUR September high: 1.1427 GBP/EUR September low: 1.0866

September

The pound had a great month in September, making significant gains against the euro (GBP/EUR) and US dollar (GBP/USD). The prospect of a UK interest rate hike drove sterling higher and investors bought the pound as Bank of England (BoE) Governor Mark Carney suggested that policymakers were close to hiking rates in November. Carney said: 'If the economy continues on the track that it's been on, and all indications are that it is, in the relatively near-term, we can expect that interest rates would increase somewhat.'

Furthermore, sterling's rally eased fears that the GBP/EUR exchange rate may reach parity. Inflation figures released at the start of the month showed UK consumer prices had spiked to 2.9% in August, from 2.6%. Core inflation which excludes fluctuations from fuel, food, and energy costs also rose to 2.7%, marking the highest level since 2011. As investors took climbing inflation as a sign the BoE may be keen to hike rates soon, GBP/USD broke through the 1.32 level, and went on to attain 1.35.

October forecast

GBP/EUR predicted range: 1.09 - 1.13 GBP/USD predicted range: 1.29 - 1.34

The start of October hasn't seen the pound begin on the best note; the first week of the month saw it put in its poorest performance in over a year. However, the second week of the month has so far seen the currency gain on hopes Theresa May will strengthen her position with a cabinet reshuffle. Political events in the coming months are likely to have a significant impact on the pound, and further inflation readings could also shake sterling. Comments from any members of the BoE Monetary Policy Committee (MPC) could be influential too, particularly if they're from Governor Mark Carney. Growth figures detailing how the economy is performing following the Brexit referendum will also be important.

EUR

EUR/GBP September high: 0.9202 EUR/GBP September low: 0.8750

September

September shook the steady landscape of European politics when the German election showed a surge of right-wing popularity. The Alternative for Germany party managed to attain third place in the election, while Angela Merkel's ruling party noted losses. While Merkel attempts to form a coalition, the euro could be vulnerable to any political mishaps. Meanwhile, Catalonia voted in an illegal referendum in the last weekend of the month which resulted in violence and political turmoil for Spain. 90% of the 2.26 million voters asked for independence from Spain, amid police raids, smashed doorways, rubber bullets, and stolen ballot boxes. Regional President Carles Puigdemont has said he will be declaring independence, amid warnings from the King and Prime Minister, and the fallout from such a move could create chaos. It's possible martial law could be declared, negotiations might need to be made, or Article 155 could be invoked, which would see the Spanish government in Madrid withdraw Catalonia's autonomy in part, or entirely. Meanwhile, speculation about the strength of the euro and how it may affect the European Central Bank's (ECB's) plans to taper its massive stimulus programme heated up in September. The euro has risen from around $1.05 against the US dollar at the start of the year, to reach around $1.19 in Q3, even attaining a 33-month high.

October forecast

EUR/GBP predicted range: 0.88 – 0.92 EUR/USD predicted range: 1.15 – 1.19

Politics are likely to be an important factor for the single currency this month. In the first week of October over 350,000 protestors rallied against independence calling to unite Spain. Further political developments and unsettlement could impact euro movement significantly. In addition, investors will be watching growth figures making their way out of Germany and the Eurozone to see how the economy is performing –positive ecostats could increase calls for easing stimulus measures. Comments from Mario Draghi are also likely to be significant when it comes to the euro's performance in the month ahead.