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The euro has been all at sea for the past week
The pound recovered against the US dollar yesterday, while circling in a high holding pattern against the euro, very close once again to its 2½ year high.
The aftershocks of the Trump victory continue to be felt, but interest rates have come back to dominate. Yesterday the Bank of England (BoE) cut interest rates by 25 basis points from 5% to 4.75%. The US Federal Reserve (the Fed) repeated the same cut yesterday evening.
However, these were largely expected and priced in. More surprising was China’s balance of trade being considerably higher than expected and Germany’s much lower. American stock markets continued to soar following the rate cut news, with the S&P 500 gaining 0.7% yesterday, taking total gains this week to 4.2%.
The difficult relationship between president-elect Trump and the Fed’s chairman Jerome Powell looks set to continue. Trump wants interest rates set lower to help business, but Powell said last night that he would not be resigning and could not be sacked by a president. Asked what the effect of Trump’s economic plans might be, Powell said: “We don’t guess, we don’t speculate and we don’t assume”.
There were sackings in Europe’s largest economy, however. Germany’s chancellor Olaf Scholz fired finance minister Christian Lindner, the leader of one of the three coalition parties, on Wednesday night. There is likely to be an election in Germany in the new year. Coming on top of the threat of US tariffs, this hit the euro, which has weakened by 1.5% against the pound over the last week and is at its weakest against USD since last June.
There’s been some interesting data in UK property. Construction PMI was downgraded from 57.2 last month to 54.3 this month – a significant drop in optimism. However, the Halifax House Price Index came out yesterday and showed British properties at their highest ever, averaging £293,999 and rising by 3.9% in the year to October. The Halifax’s Amanda Bryden said that the budget had probably put paid to sharp mortgage rate reductions for now: “While we expect house prices to keep growing, it will likely be at a modest pace for the rest of this year and into next.”
This is in contrast to Savills who predicted yesterday that average house prices will rise by 23.4% over the next five years.
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GBP: Pound staying high against euro
Sterling had a day of mixed fortunes, gaining against the US dollar, but losing heavily to the Norwegian krone and Australian dollar. Later today chief economist at the BoE Huw Pill will be speaking. Next week the higher-level data arrives again with unemployment, earnings and GDP.
GBP/USD past year
EUR: Euro sinks lower as German woes worsen
The euro has weakened by as much as 2% against major rivals over the past week. Against the currencies like BRL and MXN the falls were around 3%, as the continent appears increasingly rudderless politically and at risk economically and militarily. Later today we will be hearing from members of the ECB and on Tuesday the ZEW Economic Sentiment Index comes out.
EUR/USD past year
USD: Dollar’s gains trimmed back
There was a slight bounce back from the dollar’s gains yesterday, with roughly 0.3% drops against GBP, EUR and others. Later today we’ll hear the Michigan Consumer Sentiment index. The markets are likely to be quiet on Monday for Veterans Day.
USD/GBP past year
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