The pound strengthened against the euro last week following the European Central Bank’s (ECB) decision to cut its interest rate again.
While gains for GBP/EUR may look small over the week (~0.4%) and month (~0.7%), when you see them over the longer term (up 5% on this time last year, and the year before, and 4% up on October 2019) it’s obvious what an excellent exchange rate this is.
From the UK, economic data pointed in two directions last week, with inflation falling fast, to 1.7%, but the public continuing to seek our retail therapy. Retail sales increased by 3.9% in the past year.
This week is considerably quieter than last on the data front. We have to wait until Thursday until the Purchasing Managers’ Index (PMI). But before then several interest rate setters from the ECB will be talking through their recent actions and future plans. These include president of the ECB herself, Christine Lagarde.
There is now a yawning gap between the ECB’s headline interest rate of 3.25% and the Bank of England’s at 5%. When this starts to narrow, more than likely on 7 November, it’s possible that sterling’s current strength will dissipate. While a 25 basis point cut is probably priced in, there is plenty that the markets are still waiting to learn, from the voting pattern and rate-setter comments.
Before all that there is the not-insignificant matter of the Budget on 31 October. Readers may remember what happened after the Budget two years ago.
While few analysts expect a repeat of that fiasco, which led GBP/USD to a 37-year low, it does threaten to be an inflection point for the economy and country more generally.
So, with these highly influential events just weeks away, if you have a major transaction coming up, why not fix today’s exceptional rate for the period of the transaction? Simply call your account manager on 020 8108 5163.
You can also see where some of the world’s best economic brains see exchange rates going in the next few months. Download your free copy of our Quarterly Forecast today for pound, euro and US dollar predictions from leading financial institutions.
