The pound has had a strong week against its major currency pairings. Yesterday’s trading saw GBP/EUR reach levels of 1.1873 notably the highest levels seen since Pre-Pandemic trading in early 2020. This week there are data releases which have the potential to create volatility for sterling kicking off with the Consumer Price Index figures on Thursday. Figures released were 3.1% which were just under the 3.2% predicted by analysts, this causes a slight dip in GBP momentarily. Friday will see the release of the UK Retail sales figures and Markit services PMI data. UK retail sales figure are expected to rise from -0.09% to 0.5% month-on-month, however, the year-on-year figures are set to fall.
The rise in inflation over the past months has supported the prediction by investors for The Bank of England to raise interest rates. The next interest rate decision will be made on the 4th November 2021.
Recent reports show a rapid rise number of COVID-19 cases in the UK. This once again sparks fresh concerns that the government may be forced to tighten restrictions as we move further into the colder winter months. Infection numbers have increased by 17.9% in the last 7 days with 52 thousand new cases reported on Thursday alone- which is the first time since July that infection numbers have been reported over 50 thousand.
There are now pressures on the government to introduce ‘Plan B’ from the Coronavirus response plan, which would reintroduce measures including wearing masks and working from home. Prime Minister Boris Johnson has stated he is ‘watching the numbers very closely’ whilst the health secretary Sajid Javid implied the public must be vaccinated or restrictions will be more likely. The Uncertainty surrounding COVID-19 has previously caused market volatility and has caused economic recovery globally to be delayed.
The Euro has continued to struggle against its major currency pairings hitting a 3-month low against USD this week whilst also struggling against GBP. The lack of economical data coming from the eurozone this week failed to provide the support the euro needs. Today will see the release of Markit PMI composite figures which has a chance to create some much-needed movement for the euro.
On Wednesday, a member of the European Central Bank, Jenns Weidmann announced he will be stepping down from his position as governor of the German Central Bank for personal reasons. Weidmann is one of the most known names on the decision-making board for the ECB due to his conservative stance on policies. There is now speculation in the European press that the announcement from him this week could be in relation to the European central bank’s current monetary policies.
Next week the European central bank will deliver its interest rate decision and monetary policies. Following this on Friday there is a flurry of data to be released including consumer price index and Gross domestic product figures. All these factors have the chance to create some market volatility.
In recent weeks the US Dollar has also struggled against GBP due to a combination of inconsistent data releases and pressures from the BofE potentially raising interest rates. GBP-USD hit a two-month high peaking on Thursday at 1.3833 which seems to be its threshold. Investors are now moving in favor of the pound vs the dollar despite USD previously seen as a safe haven currency. With the looming interest rate decision from the Bank of England investors see a higher rate of return from GBP.
Thursday afternoon saw the release of the initial joblessness claims which were reported at 290,000, 10,000 less than it was forecasted. The September non-farm payroll figures reported 194,000 new jobs were gained by the US economy – a far cry from the 488,000 that was projected. This supports evidence of a slow economic recovery for the United States following the pandemic.
Today we can expect Markit Manufacturing PMI and Markit services PMI for October. Both are expected to be close to September’s figures but any major change in this could create some market volatility. Next Thursday GDP figures for Q3 will be released, which may be one to watch as it has potential to cause some market movements.
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