Currency Note

Sterling maintains yesterday’s 2023 high against the euro

By Christopher Nye June 1st, 2023

GBP/EUR is up 1% on the week

The pound hit a fresh 2023 high against the euro yesterday and maintains those gains this morning. The GBP/EUR boost comes as economists digest the latest economic data surrounding fixed interest rates plus Germany’s consumer price inflation. Against the US dollar, sterling remains stronger with weekly gains of nearly half a per cent.

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There will be several interesting economic releases for investors to digest over the course of today. At 10am the spotlight will be on the eurozone’s inflation and unemployment rates.

For US dollar watchers, all eyes will be on the ISM purchasing manager’s index at 3pm. In the previous release, the index rose to 47.1 in April, up from a three-year low of 46.3. Today, markets are expecting that number to edge up slightly to 48.

A fresh wave of strikes hit parts of the UK on Wednesday, as members of the train drivers’ union, Aslef, walked out. Aslef has also announced that train drivers will strike again this Saturday, affecting several events including the first ever all-Manchester FA Cup final, the Scottish Cup final and the England v Ireland cricket Test match.

In a report by credit company, Moody’s, analysts warn that unruly inflation and higher interest rates are set to drive the UK, Germany and United States economies each into recession. According to economists, “stagnant economic activity in France and Italy” are also expected.

Italy’s preliminary inflation rate fell to 7.6% as markets expected. According to the National Institute of Statistics, the deceleration was largely due to a fall in prices of non-regulated energy.

Likewise, Germany’s consumer price inflation declined yesterday. The rate fell to its lowest since March 2022, hitting 6.1% year-on-year.

Yesterday was a less optimistic one for European equities as the Italian stock, FTSE MIB index, hit a two-month low closing 2% lower at the 26,050 mark. Meanwhile, the Spanish IBEX 35 dropped by 1.28%. French stocks also hit an over two-month low on Wednesday, with the CAC 40 index dropping approximately 1.5%.

Similarly, the UK’s blue chip FTSE100 stock ended the day at a two-month low yesterday, as ongoing uncertainty about the US debt ceiling pushed investors towards safer assets.

GBP: Markets await data from the BoE

Despite a lack of economic data from the UK this week, sterling is still strong against a handful of its rivals — including the euro, US dollar and Japanese yen. Many will be watching closely to see if this morning’s consumer credit data will impact the pound’s new found strength. The data will be released shortly at 9:30am.

GBP/USD over the past year

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EUR: ECB’s Lagarde to speak

The European Central Bank’s president, Christine Lagarde, is scheduled to deliver a speech this morning. Lagarde’s speech will follow the eurozone’s latest inflation rate — so many will be listening closely for any hawkish comments or hints on monetary policy as these could help a pressured euro.

USA: Job vacancies on the rise

Yesterday afternoon economists saw the number of job vacancies in the United States unexpectedly jump by 358,000, hitting 10.1 million in April 2023. This was a rebound from the previous month’s near two-year low and pointed towards a persistently tight labour market – one which economists think , could potentially lead to additional interest rate hikes by the US Federal Reserve.

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