- Move aided by ongoing market optimism

- Resurgence in Covid-19 infections in Europe weigh on Euro

- Could go to 1.1389 over coming days says Natixis

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GBP/EUR spot rate at time of publication: 1.1171Bank transfer rates (indicative guide): 1.0880-1.0958FX specialist rates (indicative guide): 1.1000-1.1070Please see here for more information on market beating ratesSterling sellers were presented with the best Euro rate of the past 10 weeks after the British Pound climbed following an important policy update from the U.S. Federal Reserve and concerns of a second spike in covid-19 infections in key Eurozone economies that might stifle the area's recovery.

In a boost to the global investment community, the Federal Reserve indicated it would keep the monetary fuel flowing into the current market recovery for a great while longer, suggesting the market rally of recent months can continue.

This is important for Sterling which maintains a positive correlation with risk appetite, tending to rise alongside improving investor sentiment.

"The Pound continues to shrug off domestic uncertainties and its correlation with global risk appetite has seen GBP/EUR stretch higher," says George Vessey, Currency Strategist at Western Union.

The Pound-to-Euro exchange rate hit a high of 1.1197 late on Thursday before retracing back to 1.1171 on Friday morning, but the Pound has built itself a solid support base from which to extend its recent trend of appreciation:

Above: GBP/EUR rallies to a ten-week high. If you would like to lock in today's exchange rate for use at a future point, please find out more here.

Concerning the outlook for Sterling, should market sentiment remain buoyant we would expect the UK currency to remain supported, all else being equal.

Markets received a shot in the arm from the Chairman of the U.S. Federal Reserve Jerome Powell on Thursday when he told the Jackson Hole Symposium in Wyoming that the Federal Reserve would in the future tolerate inflation above 2.0% before rushing to raise interest rates.

This makes for a significant shift in policy at the U.S. Federal Reserve and it will no doubt have major implications -positive or negative - for years to come.

Typically central banks raise interest rates in an attempt to keep inflation under control, but doing so can also kill off economic expansion. The Fed's decision to relax their objective to keep inflation contained at 2.0% is therefore a signal that the Fed won't stand in the way of economic growth for a while yet, which is a green light to investors and could well spell U.S. Dollar weakness going forward.

"Assuming that policymakers can keep ‘V’ shape recovery hopes alive – and inflation expectations firming – the market will probably run with this theme into 2021. This should maintain the bearish overhang for the Dollar," says James Knightley, Chief International Economist at ING Bank N.V.

However, for GBP/EUR it is not just the broader backdrop that matters: we are also noting some broader Euro underperformance creep in which might be suggestive some idiosyncratic themes are at play.

One potential issue that could well be starting to weigh on sentiment towards the Euro is a resurgence in Covid-19 cases in some Eurozone countries, which suggests a strong recovery seen over the June-July period might be starting to stutter as countries take extra measures to stop the spread of the virus and consumer sentiment slips in response.

A look at the following graphic from Standard Chartered shows how the virus caseload in the UK compares with some key Eurozone countries:

As long as cases in the UK remain manageable the recovery - which accelerated in July and August - will likely continue. This could in turn suggest the UK economy will enjoy a relative outperformance over coming weeks which would support Sterling against the Euro.

Analysis of the GBP/EUR exchange rate conducted by Natixis - the French investment bank - meanwhile shows GBP/EUR could be about to take a run at 1.1286 should a move above 1.1163 occur.

This development has now been fulfilled, and Micaella Feldstein, an analyst at Natixis, says there is scope for the rally to extend to 1.1389 over the next seven to ten days.