The pound climbed to within reach of its highest level this year against the euro on Thursday, as inflation figures from the eurozone pointed to an easing in price pressures – as well as the potential for further interest rate cuts from the European Central Bank (ECB).
GBP/EUR has strengthened by almost a cent since the start of the week. On Thursday, the pound flirted with a 2024 high against the euro before retreating slightly. Both currencies ceded just under half a per cent to the US dollar yesterday, although GBP/USD is still not far off its highest in two years.
German headline inflation for August ducked under the symbolic 2% threshold for the first time since March 2021. While only a preliminary read, the 1.9% figure was enough for some to conclude that the ECB’s tactics had stalled inflation in Europe’s largest economy, particularly given most economists had forecast a result closer to 2.2%.
Even before this news broke, data from Spain set the tone for the day. It too reported lower than expected inflation in August, albeit slightly above the 2% at 2.2%. However, that very much added to the sense that inflation was moving in the right direction, and heightened the stakes for the ECB at its next meeting.
Not to be outdone, the US had a bombshell of its own. Annualised US economic growth in the second quarter of 2024 (April-June) increased from 2.8% at the first estimate to 3%, driven by increased consumer spending and various kinds of investment.
Meanwhile, US initial job claims held broadly stable last week, coming slightly under forecasts at 231k. While lower than many of the past few weeks, commentators observed that it was far higher than the averages recorded earlier this year, pointing to a weaker labour market.
Tech giant Nvidia tumbled further yesterday, losing around $100bn (or 4%) in market value in the US morning session. Senior figures sought to reassure markets but the decline brought with it a feeling of unease. Nvidia has quickly become an important bellwether for US tech firms.
Thursday’s action provided a stark warning for anyone tempted to base their financial decisions on the prevailing market mood. While its natural to expect exchange rates to remain stable, the slightest nudge can blow them rapidly off course. In a year full of momentous events, volatility is high and those nudges can turn nasty very fast.
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