GBP-EUR drops to 3 week low

This busy week for the Pound got off to a poor start yesterday with the latest UK Inflation figures coming in lower than analysts’ forecasts. The markets were anticipating a further increase in the headline inflation figure from 3% to 3.1%, which would subsequently trigger a letter to the chancellor from Mark Carney to explain why inflation had soared over 1% above the target rate. Actual results however saw a hold of the headline rate at 3% and this caused pressure on Sterling throughout the day’s trading.

GBP/EUR exchange rates

The Pound suffered its biggest loss yesterday against the Euro, which itself enjoyed a very good day gaining around a cent against most major currencies. The change in rates yesterday was a significant one as it has technically reversed the upward trend that has been in place favouring the pound for the last 2-3 months, with rates dropping to a 3 week low against the single currency. This opens up a greater risk of rates continuing to move lower in the coming weeks and any gains are now likely to be much more limited. Now that the positivity of the recent UK rate hike has been and passed, the Pound is very exposed to weaker data as well as Brexit and Political uncertainty, with a number of major banks still forecasting another drop towards parity going into the new year.

The Day Ahead

Today continues the busy week for the Pound with the next big data announcement due at 9:30am. This will include both the latest headline Unemployment rate as well as the current Average Earning figures for the month of September. The Unemployment rate is expected to hold the same as previous at 4.3%, but there will be a close eye on the average earnings which are currently at 2.2%. This means that prices are increasing at a much faster pace (3%) than real term wages which puts pressure on peoples spending ability. Any variation on the expected 2.1% figure could impact Sterling during today’s trading.

This afternoon we have 2 key releases from across the pond, with US Retail Sales and latest inflation figures both released at 1:30pm. The inflation in particular will be in focus from the markets as they continue to eye developments in data of this nature to see how they affect they chances of a rate hike by the Federal Reserve next month. The higher the figure the more likely a hike happens, but analysts are predicting a drop to 2% from 2.2% last month.