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The euro battled falling inflation figures and expectations of lower interest rates on Monday.
Another batch of inflation figures from the eurozone increased expectations that the European Central Bank (ECB) would cut interest rates by 0.25% at its October meeting.
With German inflation falling by more than expected to 1.6% in September, GBP/EUR climbed by half a cent and EUR/USD shed slightly more. The pound also advanced on the US dollar to start the week as American markets looked to a speech from Federal Reserve chair Jerome Powell for fresh impetus.
Up until recently, the consensus among Europe’s economists had been that the ECB would cut just once more this year. In the space of just days that has changed to twice, particularly as PMI data has also registered surprisingly low, alongside falling inflation.
Italian inflation meanwhile fell sharply from 1.1% in August to as low as 0.7% in September. That is the lowest monthly read this year and another indication of the impact of interest rates on price increases.
UK GDP growth in the second quarter was revised down slightly from an initial 0.9% to 0.7% year-on-year. Despite the fall, that marks the highest quarterly growth rate in the UK since the third quarter of 2022.
Chinese stock markets extended their blistering rally on Monday. A pair of Chinese manufacturing studies showed that, while activity continued to contract, it was falling at a much slower pace than at other times this year. Markets also continue to expect the government to announce further support measures for the economy in the coming months.
Overnight, an Israeli ground offensive moved into Lebanon, underlining further escalation in the conflict between Israel and Iran-supporting groups. Israel conducted its first air strikes on Beirut since 2006 and continues to target Hezbollah targets after the death of leader Hassan Nasrallah.
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GBP: GDP provides boost
If Keir Starmer and the Labour party needed a pick me up, news that quarterly growth came in at its highest since 2022 would have done nicely. Due to the importance Labour is placing on growth, the news will be a nice palate cleanser after the trials of last week’s party conference.
GBP/USD: the past year
EUR: Inflation sinks again
Italian and German inflation figures will only turn up the volume for the ECB at its next meeting. Italian data in particular looks concerning, as do persistently poor manufacturing reads from over the summer.
GBP/EUR: the past year
USD: Looking for guidance
The US dollar fluctuated on Monday as currency markets looked to the Federal Reserve for guidance on interest rates. As has often been the case this year, interest rates expectations are having as large an impact on currency pairs as other economic indexes.
EUR/USD: the past year
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