It was a positive day for the pound yesterday, as the gap widened between the eurozone’s and the UK’s interest rates.
But sterling also strengthened significantly against the US and Canadian dollars, the yen and Swiss franc too, possibly buoyed by a rise in US stock markets and probability of a first interest rate cut from the US Federal Reserve next week.
The European Central Bank’s headline rate cut of a quarter point to 3.5% was the second such this year, but was widely predicted. President of the ECB Christine Lagarde offered no official forward guidance to the markets on where they night go next, other than saying that the direction was “pretty obvious”.
The question for the Fed is whether to cut by 0.25% or 0.5% next week. Either would be the first in four years but the markets are currently pricing in the smaller cut. The Bank of England follows on Thursday but current betting is for no further reduction this month.
Elsewhere in the markets, the price of oil was dropping again, falling below $70 for a barrel to its lowest level for three years, while the gold price hit an all-time high of $2,555.11.
Slipping out early yesterday was an upbeat report on UK property. The RICS House Price Balance is a survey of the residential property market by members of the Royal Institution of Chartered Surveyors. Since October 2022 it has been firmly negative, with most surveyors predicting property prices will fall. However, yesterday it was positive for the first time in two years.
The markets appear to be taking in their stride the risk of escalation in the Russia-Ukraine war, after the latest threat from President Putin of retaliation if NATO weapon systems are used within Russia.
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