Sterling reached its highest point for 10 days yesterday against the euro while strengthening gently against the US dollar (although that small gain has been wiped out this morning).
Affecting GBP/EUR will be the German elections, where the left of centre SPD under Olaf Scholz has claimed victory from Angela Merkel’s more conservative party. The SPD must now try and make a coalition with the Greens and more liberal parties.
On the GBP side, the continuing fuel crisis is just the most obvious sign of supply and staffing shortages that many industries has been warning of for months. If this leads to a surge in inflation then the Bank of England will need to step in, and it is this belief that’s likely to have supported sterling yesterday.
In a speech yesterday evening the governor of the Bank of England Andrew Bailey highlighted such problems, speaking of the “hard yards” ahead as the economy recovers from Covid. On interest rates he struck a notably hawkish tone, saying that the MPC were unanimous in being willing to raise rates as early as this year if necessary to prevent inflation settling in. However, early 2022 still looks more likely, with February being the month when rates could rise.
In both Europe and the US, central bankers and economic policymakers are having a busy week of speech-making, any one of which could affect the strength of your currency.
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