The Pound started this week on the ropes after last week’s Bank of England monetary policy decision. Interest rates were left unchanged at 0.10% and the likelihood is that a rate hike will come about early next year. This stance by the Bank of England was a surprise to the markets, hence why we saw the Pound decrease in value against most currencies. The BoE will want to see clarity on the employment situation post furlough scheme here in the UK before hiking interest rates. The next Bank of England meeting is 16th December, the markets aren’t expecting a rate rise at this meeting as historically December is not a month for interest rate movements. However, any indication to the contrary will move the markets so it’s well worth keeping a keen eye on developments or keeping in touch with your account manager here at Lumon.
Towards the back end of trading yesterday the Pound recovered some ground against the Euro (above 1.17) and US Dollar (above 1.35). Despite this small recovery, the Pound is the biggest loser amongst the world’s largest currencies over the last month.
In other news, the Prime Minister has been under fire regarding the accusations his government is corrupt. Conservative Party lawmaker, Owen Paterson was eventually found to have breached rules on paid lobbying but the handling of the issue by the PM wasn’t well received by the public, putting political pressure on his government.
This Thursday, we will see important economic data here in the UK with Gross Domestic Product data alongside Manufacturing and industrial production data. This data is a good indicator on how the UK economy is performing and therefore can affect the currency markets.
Germany’s coronavirus infection rate has hit its highest level since the start of the pandemic. Doctors have warned they will need to postpone scheduled operations in the coming weeks. With Germany being the largest economy in the EU, it is well worth following political policy developments. If the government hint towards upcoming lockdowns or restrictions to ease pressures on the hospitals, this could affect the euros value as the economy will be affected.
The EU and UK are heading for another Brexit showdown following the third meeting over Northern Ireland issues. The UK are hinting towards triggering Article 16 of the Northern Ireland protocol to override the problematic elements. Brussels have responded by saying there would be “serious consequences” if the UK triggered Art 16, the consequences are not clear and would depend on the UK stance. To date, this political posturing has not really affected the currency markets however it has the potential to grow into a big fallout between the UK and EU and therefore should be followed closely. The issue for the UK is the involvement of the European Court of Justice, an EU institution in a UK sovereign matter.
The ongoing issue with Northern Ireland serves as a reminder that the Brexit deal was by no means perfect or conclusive. Sefcovic, an EU member travels to London on November 12th to continue discussions. The UK and EU tend to negotiate until the final hour and given there is no deadline date, it is hard to see much progress in the near term or at least until a decision has to be made.
Friday last week, we saw stronger than expected non-farm payroll data in the US alongside upward revisions of job growth which was positive reading for the US dollar.
Wednesday this week we will find out the inflation data for October, which could affect the Federal Reserve monetary policy. Economists widely expect U.S. inflation to remain above 5.4% and the core measure to remain above 4%, if inflation remains high, the Federal Reserve QE programme could end sooner than expected. However, Jerome Powell the Fed chair has mentioned they will be patient in waiting for the inflation figures to calm down as temporary factors are affecting inflation figures.
“Of course, the timing of that is highly uncertain, but certainly we should see inflation moving down by the second or third quarter. The time for lifting rates and beginning to remove accommodation will depend on the path of the economy. We think we can be patient. If a response is called for, we will not hesitate,” Chairman Powell said in Wednesday’s press conference.
The markets were pricing in two interest rate hikes from the Fed by the end of 2022, however this “patience” from the Fed chair Jerome Powell suggests there is little scope for rate hikes to be brought forward.
Keep in touch with your account manager here at Lumon for further updates.
This blog post is intended to provide you with information on the services Lumon Pay Ltd (“LPL”) offer and should not be interpreted as advice or as a solicitation to offer to buy or sell any currency or as a recommendation to trade. Foreign exchange rates provided therein are for indicative purposes only and are not intended to give an accurate reflection of current currency exchange rates or to predict future movements in currency exchange rates. LPL, trading as Lumon, is a company registered in England with its registered address at Building 1, Chalfont Park, Gerrards Cross, Buckinghamshire SL9 0BG. LPL is authorised by the Financial Conduct Authority as an Electronic Money Institution (FRN: 902022).