Currency Note

Markets focus on autumn Budget and ECB meeting this week

By Erin Harding October 25th, 2021

Editorial credit: Cubankite / Shutterstock.com

The pound is strong against the euro and the dollar today ahead of the autumn Budget, which will take place on Wednesday.

Chancellor Rishi Sunak is expected to reveal extra funding for the NHS, as well as plans to reduce greenhouse emissions and help to support businesses and individuals recover economically from the pandemic.

The European Central Bank will hold its latest meeting this week and President Christine Lagarde is expected to comment on plans surrounding interest rates and monetary policy. The euro could be impacted by this on Thursday.

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GBP: BoE Tenreyro speech later today

The pound is still trading around strong levels against the euro and the dollar this morning ahead of a light week for economic data releases in the UK.

Bank of England official, Silvana Tenreyro will speak later today and could build on comments made by new Chief Economist, Huw Pill, at the end of last week. He suggested that interest rate hikes could take place this year or next, but the question about whether to raise rates was a ‘live’ one. He also expressed concerns that inflation could rise to 1%.

Also this week, Chancellor Rishi Sunak will reveal his autumn Budget. The Budget will reportedly contain a cut to the 5% VAT on energy bills and changes to alcohol tax.

GBP/USD chart over past year

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EUR: ECB meeting this week

The euro is trading around the same levels against the dollar and the pound this morning, little changed from the end of last week.

The markets are awaiting the European Central Bank’s latest decision on interest rates, which will be announced on Thursday. Although it’s thought that no big decisions on monetary policy will be made until December, the ECB’s comments surrounding this could impact the euro.

Comments from officials in recent weeks suggest that members are somewhat divided over the course of action to take surrounding inflation.

Economic, industrial and services sentiment figures will be released for the eurozone on Thursday, followed by inflation figures on Friday.

USD: Dollar weaker after Powell comments

The dollar is slightly weaker against a basket of currencies this morning after Federal Reserve Chairman, Jerome Powell, said on Friday that it’s not time to be raising interest rates.

It’s still thought that the Fed will raise rates next year, however, rate hikes from other central banks, such as the Bank of England, are expected to occur sooner.

GDP and personal spending figures will be released for the US this week. GDP is estimated to come in at 2.8% for the third quarter of this year, lower that 6.7% in the second quarter.

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