Sterling climbs higher against euro

The pound has remained strong

Sterling continued its upwards trajectory against the euro yesterday, which has taken it upwards by close to 2% in the past two weeks.

Against the US dollar, sterling’s recent gains were pared back sharply yesterday, but it remains nearly 4% up on the start of November.

Powering sterling’s strength in the early part of the week was the governor of the Bank of England Andrew Bailey touring regional newspapers to warn that interest rates will stay higher for longer. He has been joined in this by others on the Monetary Policy Committee (MPC).

Then yesterday, to reiterate the difference in the problem that the UK faces with inflation compared to the rest of the world, the eurozone’s inflation rate fell to 2.4%. This was a considerably bigger drop than expected. Core inflation also fell, to 3.6%. Even better for the European Central Bank (ECB), this has been achieved without unemployment rising. At 6.5% European unemployment remains at or close to a decades-long low indicating that the ECB may have achieved a soft landing for the eurozone economy.

Hence, the markets are betting on the ECB lowering interest rates earlier than the Bank of England and sterling is gaining as a result.

The BoE’s hawkish outlook was supported by new data from the Office for National Statistics that appeared to show that unemployment in the UK was much lower in the first half of 2023 than previously thought.

Meanwhile, no doubt affected by rising borrowing costs, UK property transactions fell in October by 2.5% compared to September and a whopping 20% less than this time last year.

What will affect the markets today? There will be a reading for Italy’s third quarter GDP. Will it fall unexpectedly like France’s yesterday, which showed the French economy shrinking by 0.1% in Q3?

Plus, whatever the collective noun is for bankers, that’s what we will see speaking this afternoon, with the ECB’s Christine Lagarde, the Fed’s Jerome Powell and several other policymakers outlining their thoughts and plans as we head into the final month of a tricky year.

In the business news, as one rail union, Aslef, starts a strike and overtime ban, another union, the RMT has ended its dispute over pay and conditions.

The world of economics and politics marked the loss of Alistair Darling, chancellor at the time of the global financial crisis. There was an outpouring of tributes from across the political spectrum.

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GBP: Sterling hits multi-week high

Sterling gained a quarter of a percent overall yesterday against the euro, while losing close to twice that amount against the US dollar.

We will shortly get a final reading for manufacturing PMI to round off the week.

There is plenty of lower-level data coming down the wires next week, including more intelligence on the housing market.

GBP/USD past year

EUR: Euro sinks as ECB tames inflation

Proving once again that good news for a country can be bad news for its currency, the euro lost essentially across the board yesterday as inflation fell in the eurozone.

Later today several members of the ECB’s rate-setting committee will be talking, which will be interesting following the sharp decline in inflation announced yesterday.

Next week starts bright and early with Germany’s Balance of Trade.

USD: Dollar recovers on inflation expectations

The dollar rose sharply yesterday, gaining between 0.5 and 1% against most major rivals as inflation expectations were revealed.

The Core PCE Price Index rose by 0.2%, down from 0.3% in the previous month, to an annualised 3.5%.

Today we will see ISM Manufacturing PMI and hear Jerome Powell, chair of the US Federal Reserve.

The major events of next week will be jobs related, as per usual at the start of a month, with JOLTS job openings and Non-Farm Payrolls.

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