Currency Note

Focus turns to ECB meeting today

By Christopher Nye October 28th, 2021

The pound weakened against the euro and the dollar yesterday following the autumn Budget but has gained back some strength this morning ahead of the European Central Bank meeting.

Whilst no major changes are expected, a reiteration of the ECB’s ‘dovish’ or cautious stance could cause the euro to weaken.

Despite this, as Eurozone inflation is at a 13-year high, the markets will be looking for any comment from President Christine Lagarde that could suggest a shift in stance.

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GBP: Budget reveals cut to Universal Credit ‘taper rate’

The pound fell against the euro and the dollar yesterday following the Chancellor’s autumn Budget but has since gained back some strength. This initial fall was due to expectations that inflation may not rise as high as first thought, as well as the prospect that the government may not need to issue as much debt as initially predicted.

Also revealed in the Budget was help for low-income families, spending boosts for pubs and highstreets, as well as changes to universal credit and alcohol tax. There was an unexpected cut to the Universal Credit ‘taper rate’, which was cut to 8%.

It’s a light day for data today, but the markets will now be looking ahead to the Bank of England’s monetary policy meeting next week.

GBP/USD chart over past year

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EUR: ECB meeting today

The euro strengthened slightly against the pound and the dollar yesterday, mainly due to weakness from sterling and the greenback.

Today, the European Central Bank will hold its latest monetary policy meeting. No major changes are expected however the markets will be listening closely for any comments surrounding the timings of interest rate hikes. It’s thought that President Christine Lagarde will confirm that rates will be raised in 2024.

Before the ECB meeting, consumer confidence and economic sentiment figures will be released for the Eurozone.

USD: Dollar weaker as Fed meeting approaches

The dollar fell slightly yesterday, as the markets are anticipating the Federal Reserve’s monetary policy meeting next week.

During the meeting next week, it’s thought that the Fed will announce the start of bond buying tapering, which will eventually lead to an interest rate rise next year.

Later today, GDP figures will be released for the US. The figure is expected to come in at 2.7%, a drop from 6.7% last quarter.

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