Sterling resumed its stop-start decline against the euro yesterday, reaching its lowest point since mid-May. It’s been a much more positive story against the US dollar, where the pound hit a two month high this week.
What could explain the divergence in fortunes? Both the pound and US dollar have been hit by the lowering of inflation in the USA and UK announced this week. Though good news for most people, lower inflation tends to weaken a currency as the money markets lower expectations of interest rate rises.
This morning UK retail sales were revealed to have fallen precipitously in October, by 0.3% month on month, when growth had been expected. This has further weakened the pound as it suggests that the interest rate rises thus far are sufficient to do the job.
Later today we will hear from two members of the Bank of England’s Monetary Policy Committee (MPC). Of particular interest will be the comments of new MPC member Megan Greene, who has something of a hawkish reputation. However, economists at Goldman Sachs have suggested that interest rates could start to come down as early as February.
Further evidence of the effects of interest rate rises have come from the Nationwide Building Society, which has found that mortgage arrears are rising. On the other hand, its own profits have risen close to a billion pounds in the six months to the end of September.
Meanwhile the euro has seen some other positive economic news, including a more optimistic mood among Europeans on the economy, as measured by the influential ZEW Economic Sentiment Index.
President Biden welcomed China’s President Xi Jinping to the USA yesterday, and at dinner with Elon Musk of Tesla, Tim Cook of Apple and other business leaders in San Francisco he received a standing ovation. He told the audience: “China is both a super-large economy and a super-large market… modernisation for 1.4bn Chinese is a huge opportunity that China provides to the world.”
In business news, the founders of upmarket chocolate chain Hotel Chocolat will be sharing £280mn after Mars agreed to buy the brand.
Less sweet for business owners, the train-drivers union Aslef has announced more industrial action in the first eight days of December, once again threatening the retail, theatre and restaurant trades at Christmas.
The economic highlight of next week will be the Autumn Statement from the chancellor Jeremy Hunt.
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