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The European Central Bank chose to lower interest rates yesterday by 0.25%, taking the headline rate to 3.25%. Markets had come to expect that judgement over the past few weeks, which meant the impact on the euro was contained to minor losses against the pound and the US dollar.
This morning, GBP/EUR shot up by half a cent following the publication of September’s retail sales report, which showed a 0.3% growth last month, far exceeding expectations of a minor contraction. The unexpected rise was fuelled in part by a large growth (2.5%) in non-food store sales and online shopping.
While yesterday’s decision was something a damp squib, Christine Lagarde, president of the ECB at least gave journalists a surprising turn of phrase in Slovenia yesterday. In what were — it’s fair to say — unusually muscular comments from a central banker, Lagarde asked “Have we broken the neck of inflation? Not yet. Are we in the process of breaking that neck? Yes.”
Lagarde also warned that the European economy could suffer should Donald Trump be victorious in the November polls. More on that below.
The euro ended yesterday’s session down by approximately half a cent against key rivals, the pound and US dollar, and approached a three-month low against the latter.
What influenced markets yesterday afternoon, however, was US retail sales data, a measure of consumer spending, which rose more than expected by 0.4% in September, faster than estimates of 0.3% and 0.1% in August. The report shows that retail and food stores saw robust demand last month.
Following reports of an increase in Philadelphia factory activity, key US stocks the Dow Jones, the S&P 500 and the Nasdaq closed higher on Thursday.
After a year-long intelligence exercise, Israeli forces killed Hamas leader Yahya Sinwar in a chance encounter yesterday. The US and the UK led an immediate call for a cease fire, as US secretary of state Anthony Blinken flies to the region to push for a new deal.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: Falling inflation ahead of the budget
Earlier this week, we heard that the UK headline inflation fell to 1.7%, the lowest it’s been since 2021. This movement puts inflation back in the central bank’s 2% territory which is likely welcome news to chancellor, Rachel Reeves, who is to deliver her first budget on 30 October. The government has already warned the budget will be “painful”.
GBP/USD the past year
EUR: A unanimous decision
During the ECB’s October meeting, president Lagarde revealed the decision to lower the bank’s three key interest rates was unanimous. The deposit facility, main refinancing operations and marginal lending facility rates now stand at 3.25%, 3.40% and 3.65%, respectively. The ECB remains committed to restrictive rates to ensure inflation reaches its medium-term goal.
GBP/EUR: the past year
USD: Traders prepare for possible Trump victory
The US Dollar Index (DXY) continued to rally on Thursday as headlines poured in forecasting a possible Trump win in the November presidential elections. For more guidance on where your exchange rate could be this time next month and beyond, download your free copy of our Quarterly Forecast.
EUR/USD: the past year
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