Sterling hits two-year low against the Euro: "Volatility will likely persist"

THE Pound has hit a two-year low against the Euro and fallen against the Dollar with financial experts predicting that the “trend will continue”.

Sterling fell to 1.13 against the Euro – from a three-year high of 1.21 back in March.

It's the lowest it's been since May 2023.

And to 1.32 against the Dollar – from a four-year high of 1.35 back in September.

The Pound (GBP) is under sustained pressure as attention turned to Chancellor Rachel Reeves’ upcoming Autumn Budget next month.

The Office for Budget Responsibility (OBR) warned that the UK faces an extra £20billion fiscal shortfall.

Its fears that sluggish productivity growth and limited momentum in economic output means the Pound is falling in value.

Prem Raja, Head of Trading Floor at Currencies 4 You, said he expected the Pound to continue to weaken.

He added: "Pound Sterling exchange rates have fallen against G10 currencies consistently over the last month, but yesterday we saw GBP/EUR hit a 2-year low at 1.13 and 1.32 against the Dollar – this is mainly due to the fact that analysts are now pricing in a rate cut for November/December from the Bank of England (BoE) which is not good for Sterling exchange rates. 

“With the upcoming Budget and BoE meetings, we expect this trend to continue, UK economic weakness and uncertainty will be difficult to solve overnight and this will reflect in exchange rates.”

Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said the Budget could lead to a volatile Pound.

He continued: "The Pound has plunged to its lowest against the Euro since May 2023 as markets brace for the Budget on 26 November.

"While hoping lower borrowing costs and growth will help, speculation is growing that Chancellor Rachel Reeves must break Labour's pledge and raise direct taxes. 

“Bond markets are watching nervously. Excessive borrowing could trigger 2022 mini-Budget-style turmoil. With Budget Day looming, Sterling volatility will likely persist as fiscal reality clashes with political promises.”

Scott Gallacher, Director at Leicester-based Rowley Turton, said the lower value of the Pound reflects the “poorer UK outlook”.

He added: "Sterling’s weakness reflects a combination of factors such as slower UK growth expectations and stubborn inflation. Markets are simply re-pricing what they see as a poorer UK outlook. Whether this trend continues depends largely on upcoming economic data and the next moves from the Bank of England. 

"If inflation remains sticky or growth continues to lag, Sterling could stay under pressure. For individuals or businesses holding foreign currency, the fall in sterling is, of course, profitable — the Sterling value of that overseas currency will have risen. 

“The same is true for investors with primarily international portfolios. The risk, however, is that if the Pound recovers, it will erode the value of that foreign currency and eat into the returns on those investments.”