GBP/EUR climbed to its highest level in over two months last week, as sterling made gains following cooling inflation data out of the eurozone. GBP/USD began this week around 0.45% up from where it began last week after a topsy-turvy time for the US dollar.
It certainly was an interesting week for the euro. Inflation data from each of the block’s major economies came in much lower than expected, a welcome dose of good news amid the storm clouds that have gathered.
The eurozone’s inflation rate fell to 2.4% – a considerably bigger drop than was expected, with core inflation also falling to 3.6%. Even better for the European Central Bank (ECB), this has been achieved without unemployment rising. At 6.5% European unemployment remains at or close to a decades-long low indicating that the ECB may have achieved a soft landing for the eurozone economy.
Markets are now beginning to bet that the ECB may join the Federal Reserve in loosening fiscal policy sooner rather than later. That’s in stark contrast to the Bank of England (BoE), whose policymakers made a number of high-profile media appearances last week beating the drum for policy discipline.
Last week’s autumn statement gave the UK plenty to think about. Chancellor Jeremy Hunt unveiled large tax breaks, although its impact on currency markets was dwarfed by those European inflation reads.
Here’s what to look out for this week….
There isn’t much for markets to since their teeth into today, but things pick up quickly on Tuesday with the ISM services PMI and JOLTs job openings from the US.
Wednesday will see BoE governor Andrew Bailey give comments, and we’ll get some manufacturing data from the UK and Europe.
After that, the Eurozone’s third GDP release will be closely watched, with markets predicting an uptick in growth in Q3.
The week ends with a bang as unemployment numbers and the ever-crucial non-farm payrolls arrive from the US.
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