Sterling lost around 0.5% against the euro but over 1% against the US dollar yesterday as global inflation raised its head again in a key week for interest rate-setters. Some of sterling’s losses have been clawed back this morning in early trading.
The cause of volatility was primarily the eurozone economy. Inflation hit 10.7%, its highest rate since the euro was created and well ahead of market forecasts of 10.2%. GDP data was also disappointing, with the smallest quarterly growth since pandemic restrictions eased.
In the UK, mortgage approvals fell in September in the biggest monthly fall since February 2021. We have heard this morning from the Nationwide that UK house prices fell by 0.9% last month, taking the annual rise to 7.2%, well below expectations.
Coming up this week, tomorrow is the US Federal Reserve’s interest rate decision, followed a day later by the Bank of England’s.
In business news, BP’s profits doubled, to $8.2bn in Q3.
A US court has dismissed criminal charges against a British currency trader who was convicted in the UK of Libor manipulation. Tom Hayes served half of an 11-year sentence in Britain but hopes to have that conviction overturned.
Battery producer Britishvolt has secured funding to stay in business and will now hope for extra government financing.
The UK’s migrant problem is now being widely described as a “crisis”, with as many as a thousand people arriving by boat each day on the Kent and Sussex coasts, a situation that the Home Secretary Suella Braverman described as “an invasion” yesterday.
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GBP: Will it be a 50 or 75 basis-point rise?
Sterling fell across the board yesterday, in a key week for central bankers at home and abroad. However it has since partially bounced back.
The only data releases yesterday were mortgage approvals, which fell to almost 67,000 in September from 74,000 in August. The Bank of England’s consumer credit data showed an increase by £0.745bn in September, around a quarter down on expectations.
The big event of the week is of course the interest rate decision on Thursday, with current expectations of a 75 basis point rise to 3%. However, a 50 point rise is certainly possible, with the monetary policy committee in a three-way split last time around.
GBP/USD past year
EUR: Highest eurozone inflation on record
The single currency fell by around 1% against the dollar yesterday, but has since regained around half of those losses.
Against sterling the picture was reversed, with choppy gains over the day since pared back this morning.
Eurozone inflation breached double figures again, powering up from 9.9% in September to 10.7% in October. Fuel was the largest part of that, rising by nearly 42% year on year, and with food, alcohol and tobacco up 13.1%.
The flash reading for GDP was 0.2% for Q3 and 2.1% year on year. Both were well below both last month and market expectations.
USD: Dollar’s early gains pegged back as FOMC meets
As the Federal Reserve’s FOMC settles in for two days of meetings that will end in tomorrow’s interest rate decision, the dollar had a mixed day. It gained strongly against the euro and sterling in the early part of the day but that has since been reversed to some extent.
There was little on the data front to write home about, with the week’s first influential data release today at 3pm UK time, manufacturing PMI and JOLTS Job Openings.