The Bank of England raised Bank Rate to 4.00% last week, its first increase since 2023, but sterling gave back its gains after a strong US jobs report on Friday lifted the dollar. The euro also ended the week slightly lower against the dollar, despite eurozone inflation reaching a three-year high. This week, US inflation on Tuesday is the main test for the dollar, followed by UK third-quarter GDP on Thursday.
Bank of England raises rates to 4.00%, but sterling gives back its gains
The Monetary Policy Committee voted 8 to 1 for a quarter-point rise on Thursday, with Catherine Mann preferring a half-point move, and Swati Dhingra and Alan Taylor switching from holding to hiking. Governor Andrew Bailey said the rise should not be seen as the first in an inevitable long sequence, and further moves were tied to energy prices, wages and activity. Sterling had risen for seven sessions into the decision, reaching its highest against the dollar since mid-September, but faded as the US jobs data landed and ended the week slightly lower against the dollar. UK third-quarter GDP on Thursday, with forecasts ranging from 0.4% to 0.7% after 0.5% in the second quarter, is the next test, ahead of UK inflation on 18 November and the next Bank decision on 17 December.
Strong US jobs revive December hike bets after a midterm wobble
The dollar fell to a four-week low after Democrats won control of both chambers of Congress in Tuesday’s midterm elections, which investors read as a constraint on US government spending and which pushed Treasury yields lower. That reversed on Friday when US payrolls rose by 165,000 against around 65,000 expected, unemployment fell to 4.1% and earlier months were revised up by 84,000, lifting the dollar index by about 0.7% and December Fed hike odds to around 80%. Tuesday’s October inflation report is forecast to hold at 3.7% on the year, with core expected to ease slightly. US bond markets are closed on Wednesday for Veterans Day, and oil prices fell sharply last week, with Brent dropping back below $100.
Euro slips despite 4.0% inflation as an ECB December hike stays in view
Eurozone inflation rose to 4.0% in October, in line with expectations and the highest since September 2023, with energy inflation at 20.8% and core inflation steady at 2.5%. Markets price roughly a 70% chance of an ECB hike in December, after the bank held at 2.50% in October and President Christine Lagarde announced she will leave in February. The euro had gained early in the week as the dollar weakened, but gave those gains back after the US jobs report and ended slightly lower. The second estimate of eurozone third-quarter GDP, due on Friday, follows a first estimate of 0.4% growth, with France having contracted.
The week ahead:
- US inflation (October) – 10/11 – GBPUSD, EURUSD
- UK GDP (Q3) – 12/11 – GBPUSD, GBPEUR
- US producer prices (October) – 13/11 – GBPUSD, EURUSD
- Eurozone GDP, second estimate (Q3) – 13/11 – GBPEUR, EURUSD
With US inflation and UK growth data both due this week, it is worth speaking with your currency specialist about how the outcomes could affect any transfers you have planned in the coming weeks.
