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Sterling gained across the board again yesterday, taking it to its best for a year against the euro with a 0.6% gain on the day and 1% on the month.
Although some of that can be blamed on the euro weakening as inflation was far less than expected in the eurozone, the pound also gained 0.4% on the US dollar and only a little less on the Swiss franc, Australian dollar and others.
For GBP/EUR the technical barriers that had held it back for exactly a year have been breached. The long-running saga of the Labour leadership threat have been resolved and the markets seem to be looking optimistically at an Andy Burnham premiership.
Elsewhere in the world it is the data more likely to move the market this week. First up was eurozone inflation, which at 2.8% was considerably less than the markets expected. So did the European Central Bank (ECB) over-react when they raised interest rates last month?
While the rest of the world may be focused on the World Cup in North America, central bankers were meeting in Sintra, Portugal. Speakers such as Kevin Warsh from the Federal Reserve and Christine Lagarde from the ECB were at pains to point out that they have no agenda and are simply reacting to data, specifically whether the USA-Iran conflict was leading to an inflationary spiral that they would need to control. In Europe, at least, the answer appears to be no, but you cannot really too much on narrow data points and for the UK, Bank of England (BoE) governor Andrew Bailey said that he could pretty rule out interest rate cuts, warning that inflationary pressures could build as a delayed reaction to the effects of the Middle East conflict. He was echoing the Bank’s chief economic Huw Pill who warned last week against “complacency” on inflation.
So the betting is pretty much evens on whether the Bank will raise rates in the UK, but with their next decision four weeks away, the bigger issue for sterling looks likely to remain the make-up of the Andy Burnham cabinet, which we should discover in two weeks.
GBP: Markets will test sterling’s resilience
Sterling’s gains may have taken it to a year-long high against the euro but its strength this month could depend on the policies of Andy Burnham and whichever chancellor he chooses. In the meantime, we’re all about the house price data, with various reports. Yesterday the Nationwide reported no monthly change, but next week we have the Halifax House Price Index and a RICS surveyors’ report.GBP/USD: the past year
EUR: Inflation report weakens euro
It was a sea of red for the euro yesterday. It could be a case of buyers’ remorse for the members of the ECB who voted for an interest rate rise last month, as the inflation data came in well below expectations yesterday. Even so, it is still above 2%. Tomorrow we get final results for the business survey, PMI, where European business leaders have been in pessimistic mode compared to their US counterparts.GBP/EUR: the past year
USA: Jobs to the fore
On the other side of the Atlantic, going into the long 4th of July weekend tomorrow we will have Non-Farm Payrolls, the clearest indicator on the American jobs market. JOLTs job openings were looking good on Tuesday, but NFP is the more influential reading. After a long run of strength, the US dollar has been pegged back at the start of this month, losing close to 1% over this week to sterling and treading water against most other pairs.USD/GBP: the past year
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