The pound strengthened on Monday as GBP investors welcomed the UK government’s U-turn on high-income tax cuts.
Sterling has already begun to relinquish some of these gains this morning, with GBP/EUR sliding to €1.1598 and GBP/USD retreating to $1.3435. GBP/CAD is muted at CA$1.7107, while GBP/AUD and GBP/NZD hold steady at AU$1.857 and NZ$1.9526 respectively.
The Eurozone is expected to report another jump in inflation later this morning, but will this be enough to strengthen the euro?
The pound rallied during yesterday’s session, with the currency clawing back some of its recent losses amidst an improving market mood as well as a stronger-than-expected UK GDP print.
What’s been happening?
The UK’s latest GDP figures reported the UK economy grew by 5.5% in the second quarter, against previous estimates of a 4.8% expansion.
However, the upside in GBP exchange rates was tempered somewhat by concerns over the end of the government’s furlough scheme, as it is exacerbated worries over the UK’s economic outlook.
The euro, meanwhile, trended broadly lower on Thursday, as while German inflation was shown to have jumped to a new 27-year high in September, it’s wasn’t seen as enough to force the European Central Bank (ECB) to rethink its dovish stance on monetary policy.
The US dollar also trended lower during yesterday’s European trading session, as relief that the US would avoid a government shutdown helped to bolster risk appetite at the expense of the safe-haven currency.
In the spotlight today will be the publication of the Eurozone’s latest CPI reading, which is expected to report inflation in the Eurozone continued to climb in September.
What’s coming up?
But given that this is unlikely to prompt the ECB to reconsider its dovish bias, its impact on the euro could be minimal.
Also of note will be the release of the US PCE price index. This is the Federal Reserve’s preferred indicator for inflation, so another strong reading could bolster tapering expectations and boost the US dollar later this afternoon.
Meanwhile, the pound may struggle to consolidate Thursday’s gains today as the UK’s latest manufacturing PMI looks set to confirm a notable slowing of factory sector activity last month, likely reinforcing concerns over the UK’s economic recovery.
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)