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The Inflation rate in the UK dipped on Wednesday to 3.1% with analysts expecting 3.2%. This may have cooled expectations for the bank to move on this year for rates. The Chief of Scottish Power has warned that energy bills could continue to rise over the next 12 months that will no doubt put pressure on households and businesses. Rishi Sunak was given a pre-budget boost at the back end of last week as figures showed borrowing was £43.5 billion less than expected which is a great sign for the UK economy as it clearly demonstrates that the economy is starting to find its two feet again. However on the other hand one huge potential issue is the increase in daily covid cases. Cases are rising to 50,000 a day and with winter fast approaching there is already talk of further lockdowns or restrictions to be put back in place to tackle these huge daily rises in infections. Any further restraints will only cause further pressure on UK businesses.
The Pound-to-Euro exchange rate could cement its grip on the 20 month high this week if October’s European Central Bank (ECB) decision underlines a separation between it and the Bank of England. Whether the Pound-to-Euro rate can hold onto these highs into next weekend may depend more than anything on the market’s response to Thursday’s 12:45 European Central Bank monetary policy decision and 13:30 press conference. Given it’s long struggle against inflation pressures that have been too limited in the Eurozone, it’s possible the ECB would want to double down behind its September policy guidance on Thursday in what would potentially be a headwind for the Euro putting strain on the GBP/EUR.
Over the course of October, the dollar has struggled against sterling, after reaching 10-month highs towards the back end of September. Sterling has gained over 2% on the dollar in the last 3 weeks, primarily due to talks around rising interest rates within the UK before the end of the year. The USD has lost ground against all other G10 currencies with the exception of the JPY since the start of the month. With that in mind, the dollar still has to weave through further economic data releases as the week goes on. Durable Goods Orders for September come out on Wednesday, with the figure showing the state of US production activity. Generally speaking, a high reading is bullish for the USD. A key for the Dollar rate this week is how the greenback responds to signs of a possible change in Fed’s policy guidance, with Chairman Jerome Powell and Governor Christopher Waller speaking on Thursday and Friday.