Eurozone inflation could test exchange rate ceiling

As we welcome the last day of September and the third quarter of 2014, we have important news from the Eurozone and USA out today. First at 10am is the Eurozone consumer inflation reading – and with recent inflation figures falling close to the dangerous 0% figure, the Euro is vulnerable to a low reading – which could give an opportunity for Euro buyers to secure excellent rates this morning. Having said that, the single currency is near its cheapest against the Pound since 2008, so there could be some resistance to much further movement. Either way, the inflation figures are the precursor to the monthly ECB statement on Thursday, and between them they could go a long way to defining the trend for the Euro in Q4.

In the States, we have consumer confidence at 3pm (UK time), which is expected to be a positive reading and could give the US Dollar further strength. The chart below shows that the recent trend has been for a cheaper Euro (around 9% cheaper than a year ago) and more expensive US Dollar in recent months – although sending US Dollars abroad remains around 2% cheaper than a year ago too. This week’s non-farm payrolls figure, due on Friday, will be of importance for the Greenback.

Yesterday we saw exchange rates remain broadly ‘as they were’ with recent gains for the Pound against the New Zealand, Australian and Canadian dollars amongst others all holding for now.

Finally there is no interest rate meeting from the Bank of England until next Thursday. Governor Mark Carney has recently said that interest rate rises are “getting closer” but we are very unlikely to see a surprise rate hike this month, so unless there is a shock decision next week, interest rates are not likely to give sterling a further boost for the time being.