The euro’s hot streak continued on Wednesday and saw it make more gains at the expense of the pound and US dollar. By the market close, GBP/EUR had fallen by half a cent and EUR/USD approached a three-year high.
Falling UK inflation hampered the pound and set the stage for the Bank of England’s next meeting. We’ll have to wait until 8 May for that, but given signs of weakness in the labour market, there is growing conviction that Andrew Bailey and co will have no choice but to loosen the constraints on the economy, if only slowly.
Remember to take any numbers we’ll see in coming weeks with a punch of salt, as the vast majority of releases won’t take the impact of tariffs into account. So, while March’s headline inflation number fell to 2.6% in the UK, April’s figures will likely be far higher as tariffs, higher household bills and employer national insurance contributions take effect.
To help pay for those price rises in an equitable way, energy regulator Ofgem has suggested electricity rates could be priced based on income. Household energy arrears hit a record high last year and Ofgem is looking into a number of measures to ease the burden on consumers.
Donald Trump’s trade tariffs will create tension between the Federal Reserve’s dual mandates of controlling inflation and maintaining stable employment, according to Fed chair Jerome Powell. In a wide-ranging series of remarks at the Economic Club of Chicago, Powell stressed the importance of price stability, without which the Fed “cannot achieve long periods of strong labour market conditions”.
The Bank of Canada decided to leave interest rates unchanged at 2.75% at its meeting yesterday. That is the first time it has opted against a cut in seven meetings and policymakers were quick to highlight the tariff variable to justify their move. The decision to hold was widely expected and contributed to only small daily gains for CAD.
The European Central Bank will provide the last key moment today before the bank holiday weekend. Markets are expecting another quarter-point (0.25%) cut to interest rates, although questions around the inflationary impact of tariffs will be hard to escape.
With the US dollar stumbling, gold surged to another record high on Wednesday as investors continued to seek refuge in safe-haven assets amid the ongoing trade war. The price of one troy ounce passed $3,300 and major stock markets sank into the red across the world.
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