Currency Note

Pound strong after Bailey suggests rate hike

By Christopher Nye October 18th, 2021

The pound is at its strongest level since February 2020 this morning against the euro and is also strong against the dollar. This is due to comments made yesterday by Bank of England Governor Andrew Bailey.

Bailey said yesterday that inflation could stay higher due to a surge in energy prices and the Bank will need to act if necessary. The markets have interpreted this as a clear sign that interest rates will be hiked soon.

Inflation data will be released for both the UK and eurozone this week, with UK inflation expected to say the same annually and eurozone inflation expected to rise. PMI figures will also be released for the UK, US and Europe on Friday, indicating how each economy performed in October.

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GBP: A busy week for economic data

The pound is strong against the euro and the dollar this morning after Governor of the Bank of England, Andrew Bailey, gave an indication that a rate hike is on the horizon.

Speaking yesterday, Bailey acknowledged that while the recent jump in inflation is transitory, the energy crisis would keep it higher for longer. He then went on to add, “We at the Bank of England have signalled, and this is another such signal, that we will have to act.”

Bailey is due to give another speech at lunchtime tomorrow ahead of inflation rate data on Wednesday. Retail sales, consumer confidence and PMI data will also be released on Friday.

GBP/USD chart over past year

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EUR: Inflation rate data this week

The euro is weaker against the dollar and the pound this morning ahead of a series of speeches from European Central Bank officials this week.

ECB President, Christine Lagarde spoke at the International Monetary Fund event on Saturday. She reiterated her view that higher inflation is “largely transitory”, sticking to her ‘dovish’ stance.

Inflation rate data will also be released for the eurozone this week, expected to show a slight rise month-on-month and annually. Consumer confidence figures will be released on Thursday followed by PMI data on Friday.

USD: Dollar strong due to rising treasury yields

The dollar is strong against most currencies this morning due to a rise in treasury yields, which have been brought about by climbing oil prices and disappointing data from China.

It’s a busy week for data in the US, with industrial production and manufacturing production figures today, jobless claims data on Thursday and PMI data on Friday. This will all give an indication of how the US economy has performed in September and October.

A series of Federal Reserve officials are due to speak throughout the week and are expected to comment on the economy and rising inflation.

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