After a strong bounce upwards on Monday to its best position for three months, GBP/EUR was like a slowly deflating balloon yesterday.
This morning’s news that the economy shrank by 0.3% in October, considerably worse than market expectations, has sucked even more air out of sterling, suggesting as it does a harder landing for the UK economy from the round of interest rate tightening.
That is likely to have a damaging effect on sterling, of which today’s limited drop may only be a warning. Therefore, to lock in your rate for the year ahead, do call your trader on 020 7898 0541.
Turning back to yesterday, the data that started bringing the pound back down to earth was average earnings. These (including bonuses) were announced by the Office for National Statistics to have risen at 7.2% over the past year. Not bad – higher than inflation – but well down on the previous reading of 8% and expectations of 7.7%.
Still, the good news for those on a state pension was that next year’s ‘triple lock’ rise was based on previous months’ readings. Pensions will, therefore, rise by 8.5% in April.
Looking at today’s news on Gross Domestic Product (GDP), combined with yesterday’s on earning and unemployment, is the Bank of England’s medicine of 14 interest rate rises finally starting to hit home to the British public?
We will get more of a clue of Friday, with the GfK Consumer Confidence reading, as well as the mood of British business with the S&P Purchasing Managers Index (PMI).
The acid test of monetary policy won’t come out for another week, with the inflation reading on 20th December, however the Bank’s interest rate setters will be making their decision today and tomorrow. Nothing much is expected, with rates still expected to stay ‘higher for longer’ as the Bank’s buzz phrase puts it, but any rising view that interest rates can come down quicker to prevent a hard landing is likely to give a hard landing for sterling too.
Remember, too, that exchange rates are a game of two halves, and the European Central Bank is also looking at interest rates tomorrow. So if you do not wish your exchange rate to be battered by bankers either side of the Channel, do consider locking it in today. That number again, 020 7898 0541.
