Early yesterday the pound reached its highest level since the Brexit referendum more than eight years ago. It was powered by the prospect of the European Central Bank (ECB) cutting interest rates, which it duly did yesterday afternoon, from 3.25% to 3%.
That done, the euro then clawed back half a cent against the pound and escaped the kind of volatility that might have accompanied a larger rate cut. The pound also fell back against the US dollar, which was itself given a leg up by sticky inflation in the manufacturing sector (more on that below).
For now, GBP/EUR remains just a whisker away from its best since summer 2016. To lock in that gain for the next year or so, secure a fixed exchange rate now with a forward contract. Call your account manager on 020 7898 0541 to get started.
Another major piece of news came with this morning’s announcement that the UK economy contracted by 0.1% in October. The early result is subject to revision, but for now it looks like shops, pubs and restaurants were unsually quiet, with customers waiting for the budget at the end of the month. The result was a surprise, with a small increase expected.
There was good news for British homeowners, however, with the RICS House Price Balance showing a clear increase in house prices last month. Across the country, the difference between chartered surveyors seeing price increases and those seeing price decreases widened to its largest margin since September 2022.
Back in Europe, the ECB’s decision came after it recently warned the eurozone economy would grow by just 1.1% next year. Given the European economy is facing several other threats — Donald Trump and the German election, to name but two – there was a widespread belief that the economy would benefit from less pressure on homeowners, businesses and investors.
ECB president Christine Lagarde referenced this shifting landscape in her press conference. “The element which has changed is the downside risks, particularly the downside risks to growth,” she opined.
Will that influence the Bank of England to follow suit next week? Despite the fall in GDP noted today, most analysts still predict that the BoE will wait until next year before cutting rates again. However, there is plenty of high level data next week – including inflation, unemployment and earnings – so watch out for the pound reacting negatively.
Make sure any upcoming transactions are protected against the risks of sudden market movements.
