Tia-Symone Howell
November 17, 2021

Sterling Gains on Higher Than Expected Inflation

GBP

We saw the pound jump from 1.16 – 1.18 against the EUR due to the release of the unemployment data release yesterday. With the number of UK workers on Payroll rising by 160,000 in October after seeing the furlough scheme end. Clients purchasing EUR using sterling were given a vast boost throughout trading yesterday, following the better-than-expected unemployment figures. This is the highest it has been since the pandemic began and is proving to show great support to the pound’s recovery. The pound is currently testing the highest of levels since February 2020.

Andrew Bailey the Governor of the Bank of England had said on Monday he wanted to see what would happen to employment post-furlough scheme before deciding whether to back the suspected increase of interest rates next month. With the current recovery starting to look promising for the pound, we also have the pandemic starting to reappear once again, which could put some dents in the road for the pound’s recovery.

NHS leaders are calling for the government to reintroduce some Covid restrictions to avoid a winter relapse, this comes as cases are still prevalent. With a vaccine booster campaign now underway, over 30 million people in the UK are eligible to have the extra dose. Boris Johnson is said to be “making plans to add the booster to the NHS Covid travel pass.”

This morning we have also had the release of inflation figures, most notably the CPI figures (consumer Price Index) which has also come in higher than expected at 4.2% against a prediction of 3.9%.

The next interest rate decision is due on December 16th, previous years have shown that the Bank of England is unlikely to move in December having not moved rates in December for 13 years, however, reports this morning suggest that there are expectations of a 0.15% rise due to the rapidly rising inflation figures so any comments surrounding this in the coming weeks will most likely lead to volatility for sterling exchange rates.

EUR

Yesterday the euro weakened against the pound to near its lowest point since Feb 2020 at 1.1855 and one Euro buying 0.8434p. The EUR was also weaker against the USD trading below 1.15. EUR/USD is one of the most traded currency pairing in the world, thus meaning when the EUR weakens against the USD, you’ll often see a pattern with EUR against other currency pairings.

There has been talk of the EUR weakening as it is expected that the UK and US will raise interest rates before the Eurozone, hence investors selling off the Euro.

Later today the European Central Bank (ECB) is set to release its Financial Stability Review. This report only happens twice a year and will outline the condition of the EUR financial system and will indicate any potential threats to the stability of the EUR. The findings from this report will provide an insight into the upcoming monetary policy.

The European Central Bank President Christine Lagarde will be making a speech this afternoon, to look out for this and what it could entail.

USD

Recently the Dollar had dropped to some of its lowest points all year. With it entering into the 1.34’s this week. Whereas the previous week it was 1.33 so were very close to those lows.

The Dollar has advanced against the GBP and EUR despite the Federal Reserve’s unwillingness to change its current monetary policy stance. However, there is speculation that the US is set to raise their interest rates before the UK, which hasn’t raised theirs in December in over 10 years.

The US stock market was stronger yesterday due to the retail sales data being released, showing a 1.7% rise in October from the previous month. This is a larger gain than what economists had anticipated. With Christmas around the corner, we could see the Fed raise interest rates after tethering them in March 2020. Last week, published figures showed US Consumer index surged to 6.2% which is a three-year high from October last year. If the US retail sector can remain as strong as it has been recently, this will most definitely the US economy and in turn the USD.

Many had suspected the US economy would’ve struggled during the pandemic with the public spending less, however, the positive retail sales figures recently revealed are beneficial to the US economy.

There are several speech’s being held tomorrow from the Fed which could bring about some volatility to the USD. So, keep an eye out or get in contact with your personal account manager for an update on the dollar.

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