The pound’s penultimate day of January was a mixed affair, with small losses and gains as the markets analysed a welter of data.
Given the decision of the European Central Bank (ECB) to lower interest rates yet again – the fifth cut since last summer, and with another one expected in March – it was a surprise that the euro held up so well.
However, GBP/EUR has been climbing steadily northward over the past two weeks and now stands at its best since the 9th January.
Sterling has been choppy against the US dollar, although the sharp rises and falls have been within a relatively tight margin.
Yesterday was hectic in the markets, with the ECB’s decision book-ended by a mass of data, the main features of which were worse than expected Gross Domestic Product (GDP) in France, Italy, Germany and indeed, the eurozone as a whole, which had 0% growth. Unemployment was also up. Hence the continued dovish decisions from the ECB. They could do so with a backdrop of falling inflation, which in France has just been revealed to have been negative in January, with prices falling at 0.1% to an annualised gain of just 1.4%
Next week it is the Bank of England’s (BoE) turn, but will they follow the US Federal Reserve and stick on interest rates, or lower them like the ECB? Current bets are for a rate cut of 25 basis points to 4.5%.
This morning we have had the House Price Index from the Nationwide, where last month’s sharp gains were pared back to just a 0.1% rise in in January, 4.1% over the year. Affordability is the issue, said the Nationwide: a buyer with an average UK income and a 20% deposit would spend 36% of take-home pay on a mortgage. This is above the long-run average of 30%.
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