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GBP/EUR fluctuates as investors reprice BoE rate hike bets

currency-newsGBP/EUR fluctuates as investors reprice BoE rate hike bets
The pound traded in a wide range on Wednesday, as a weaker-than-expected inflation reading raised questions over whether the Bank of England (BoE) will hike interest rates next month.

Trade in Sterling remains mixed so far this morning, with GBP/EUR flat at €1.1853 and GBP/USD ticking down to $1.3799. GBP/CAD is rangebound at C$1.7023, while GBP/AUD and GBP/NZD are buoyed at AU$1.8432 and NZ$1.9221 respectively.

Looking ahead, will some upbeat US employment data help to buoy the US dollar this afternoon?
 

What’s been happening?

The pound initially ticked lower during yesterday’s session, after the UK’s consumer price index printed slightly below expectations, reporting domestic inflation slowed from 3.2% to 3.1% in September.

The surprise slowing of inflation prompted GBP investors to reprice their expectations for a BoE rate hike in November, with odds for a hike falling from 59% to 32%.

However the majority of investors still see the BoE hiking rates by the end of 2021, something which left the door open for Sterling to rally through the second half of the session.

The US dollar, stumbled Wednesday, as a prevailing risk-on mood continue to dampen the appeal of the safe-haven currency, offsetting a risk in US Treasury yields.

Meanwhile, the euro benefitted from this dip in the US dollar, thanks to the strong negative correlation between the pairing, with the single currency also being underpinned by the latest Eurozone CPI reading, as inflation printed in line with expectations in September.
 

What’s coming up?

Turning to today’s session, the publication of the latest US initial jobless claims could provide fresh direction for the US dollar.

This could see USD exchange rates strengthen this afternoon if new claims continued to fall last week, although any upside in the ‘greenback’ could be capped by the accompanying Philadelphia manufacturing index, which is expected to report a slowing of manufacturing growth this month.

In the meantime, the Confederation of British Industry’s (CBI) industrial trends index may exert some pressure on the pound this morning, if it reports a dip in order growth in October.

For EUR investors the focus today is likely to be on the Eurozone’s latest consumer confidence figures, with the euro potentially weakening if household morale weakened as expected this month.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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