The Pound Sterling has had a tough time against the Euro this year, showing a change in how the market feels about Germany and the Eurozone. Economists believe that lower confidence in the UK’s GDP and productivity growth means fiscal issues won’t be solved just by economic growth.

Pound Sterling Performance

This year, the Pound has weakened against the Euro. The EUR/GBP is aiming for a target of 0.87 in three months and a revised six-month forecast of 0.88. On the other hand, the US dollar has become stronger, emerging as the best-performing currency among the G10, with room for further growth. The forecasts mentioned come with risks and uncertainties. They are not recommendations to buy or sell assets. Investing in open markets carries significant risks, including emotional stress and possible total loss. Make sure to do thorough research before making any financial decisions. We expect the UK’s weak growth outlook to be a main concern in the coming weeks. The Organisation for Economic Co-operation and Development has recently projected UK growth at only 0.4% for 2024—one of the lowest among developed economies. This supports the idea that fiscal challenges will continue. Such economic struggles make it hard to justify investing in the Pound. Given this situation, we recommend that derivative traders think about strategies that benefit from a rising EUR/GBP exchange rate. The latest German ZEW Economic Sentiment survey increased for the tenth month in a row to 47.5, showing growing optimism in the Eurozone’s largest economy, which supports the 0.88 forecast. Buying call options on this pair could be a smart way to prepare for this anticipated change.

Dollar Performance

The dollar has been performing strongly, backed by a hawkish Federal Reserve. With US core inflation stubbornly high at 3.6%, interest rates are expected to stay elevated for a while, which will likely keep demand for the dollar high. We believe that purchasing USD call options against the Pound is a wise strategy. History shows that when US monetary policy is strict and UK economic data struggles, the GBP/USD pair faces downward pressure. This difference makes a strong case for using strategies that take advantage of both trends. Therefore, we suggest considering put options on GBP/USD, as this would benefit from the Sterling’s domestic weaknesses and the dollar’s strength abroad. Create your live VT Markets account and start trading now.

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