The euro fell to its lowest level in half a year against the pound yesterday, continuing a miserable streak for the single currency. Battered and bruised, the euro then dipped by more than a cent against the US dollar, while GBP/USD fell by a slightly smaller amount.
At one point yesterday, you would have paid over €11,000 less on a £500,000 transaction compared to 1st January. Currency markets can never be trusted, which is why it is so important to plan ahead and be aware that exchange rates can change in the blink of an eye.
The last day before the start of lent served up a feast of data. On a day once reserved for flipped positions – servants becoming masters, men becoming women – the euro may have hoped for a reprieve from its recent status as the younger brother of currency markets. That was not to be, however, with the pound and the US dollar each boosted by their own set of economic releases.
Even the influential German ZEW Economic survey couldn’t stem the flow. The survey recorded the seventh straight month of increases in sentiment amid hopes of interest rate cuts, although German consumers have less positive things to say when it comes to their own economy. The beatings, as the naval maxim says, will continue until morale improves.
The biggest move yesterday was driven by a slower than expected fall in US inflation. The annualised headline rate fell by less than expected in January, from 3.4% to 3.1%, while core inflation actually increased month-on-month, from 0.3% to 0.4%.
This caused steep drops in value for the pound and the euro against the US dollar. Investors were again dancing the Hokey Cokey with their bets on when the Fed will cut interest rates. We’ve now entered what feels like the “shake it all about” phase: there are fewer bets that the Fed will cut in May, but that’s liable to change at the drop of a hat.
UK unemployment decreased from 3.9% to 3.8% in December, beating forecasts of 4%. Diving deeper into the numbers, the fall appeared to be driven by an increase of part-time workers taking up full-time rolls, as well as a rise in self-employed workers.
This morning, news that UK inflation held steady at 4% in January (defying expectations of a rise to 4.2%) sent sterling down slightly against its rivals. Headline and core inflation fell by 0.6% and 0.9% respectively month-on-month, reflecting better than expected progress on price increases.
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