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The Federal Reserve held interest rates in July 2024
Sterling came under pressure in Tuesday’s session, losing around half a cent against the US dollar and falling off multi-month highs against the euro.
GBP/EUR fell as more evidence of European economic stagnation arrived. Preliminary figures for German GDP in Q4 showed a 0.3% contraction, and while Italy and Spain’s numbers were more positive, the eurozone economy as a whole grew by just 0.1% in the last quarter of 2023.
Attention will soon turn to the Bank of England (BoE) and the Federal Reserve, both of whom have interest rate decisions set for the next two days. The Fed is first up and while few are expecting them to cut interest rates, currency markets are no stranger to a big surprise.
The same is true for the BoE, which relays their own decision tomorrow. Headline inflation bumped up slightly to 4% in December compared to 3.9% the month before, and Andrew Bailey and co are expected to err on the side of caution for now.
There’s always volatility when central bankers are in the spotlight, so don’t risk any nasty shocks: lock in a forward contract today.
The number of job openings in the US economy increased by far more than expected in December. Seemingly immune from high interest rates, American companies increased the number of unfilled positions by over 100,000 from November. That figure is now at its highest level in over three months.
The IMF issued a rare slap on the wrist to UK chancellor Jeremy Hunt yesterday. The global finance body warned that his widely-predicted plan to cut taxes was in direct conflict with the need to provide essential public services and maintain fiscal discipline.
Average mortgage costs in the UK fell for the first time in over two years, according to the BoE. Homeowners across the land can breath a little easier now, as mortgage approvals rose and the average interest paid on new mortgages dipped to levels not seen since 2021.
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GBP: Borrowing falls, but not mortgages
The pound lost half a cent to both the euro and the US dollar on Tuesday before recovering slightly in the evening session.
Borrowing statistics out yesterday should not be lost amid the interest rate clamour. Most metrics of consumer lending tightened in the UK last month, as banks and households proved reluctant to open new lines of credit. Mortgage approvals were the notable exception, along with an increase in the net number of approvals for mortgage refinancing.
GBP/USD: the past year
EUR: Germany in trouble
The euro continued to strengthen on the back of weak growth and comments from the European Central Bank. The euro gained almost half a cent against the pound while climbing by 0.3% against the US dollar.
Germany has found itself at the centre of a storm in recent months. Weak GDP figures from yesterday will do little to build confidence, so there’s added pressure on today’s inflation and unemployment reads to show things are improving.
GBP/EUR: the past year
USD: Hush for the Fed
The US dollar was stable in Tuesday’s trading, as markets looked ahead to the key decision today.
With a resilient labour market and steadying inflation, could the Fed cause a shock and cut interest rates today? We’ll bring you the news in tomorrow’s edition, but the economic signs seem to be pointing to cuts in the not too distant future.
USD/EUR: the past year
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