Tiffany Duff
November 25, 2021

The Euro Continues to Fall Back Against Its Major Currency Pairings

GBP

It has been a good week for sterling, kicking off with a 21-month high for GBP/EUR rates. Tuesday saw the release of Markit service and manufacturing PMI figures. Figures were higher than forecasted indicating steady and solid growth in both sectors. However, it also showed high input costs for businesses. Constant supply chain issues and staff shortages have limited businesses within the UK following the Covid-19 pandemic. Supply shortage is an issue effecting companies worldwide and this is expected to last for at least the next 6 months. The cost of living in Great Britain has now risen to the highest it has been in a decade shown by the latest inflation data. Demand for energy is pushing prices up globally for business and households. This puts pressures on the Bank of England’s monetary policy committee once again to raise interest rates in December following the decision to keep interest rates unchanged in November’s announcement.

As we transition into the colder winter months, concerns surrounding COVID-19 have once again started to grow whilst we watch many countries within Europe plunge back into lockdown. Despite infections numbers rising to 43 thousand, the number of reported deaths following a positive covid test has reduced by a quarter – from 201 to 149 in a week. The UK seem to be in a better position compared to other countries mainly due to is successful vaccination roll out. Because of this success it’s less likely that the UK government will deviate from their current winter covid plan. This means businesses can stay open and many industries that have previously suffered during lockdowns will be able to continue operating throughout the winter months.

In the next week there aren’t any notable data releases in the coming week for the UK.

EUR

As mentioned above countries within Europe are once again struggling with rapidly growing COVID-19 cases. As of Wednesday evening, Austria is now in a full lock down whilst other countries such as the Netherlands and Ireland have imposed evening restrictions meaning businesses have to close by a certain time. Many countries in Europe have decided to no longer allow the unvaccinated to attend public gatherings. There is belief that introducing these measures will help slow the spread of the virus and prevent tougher restrictions being imposed. The health minister of Germany Jens Spahn issued a very worrying statement “more or less everyone in Germany will be vaccinated, cured or dead” by winter end. Cases in Germany have risen by 50% in a week which has left the health minister and chancellor Angela Merkle urging people to get vaccinated as the current measures alone will not suffice. The chancellor expressed her concerns saying the country is in a ‘highly dramatic situation’. Previously the EU have been notably slower in their vaccination delivery program following supply issues early in the vaccination process. However, should they continue to vaccinate quickly this should provide at least some hope for the currency.

Friday the European Central Bank will meet to discuss the financial markets and monetary development. They will also give the public an overview of the current economic condition.

USD

The dollar is consistently a strong performer against its other major currency pairings. Yesterday’s trading saw GBP/USD dropping to lows of 1.331.

Wednesday evening saw the release of the minutess from the federal open market committee meeting in November. The minutes indicated the Federal Reserve’s growing concerns regarding rising inflation levels. The meeting summarised that Fed officials would be willing to raise interest rates sooner than currently anticipated.

“Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objectives,” the minutes confirmed.

As seen in the UK the US inflation levels are rapidly rising, the highest it has been since the 1990’s. Despite rising wages and a flurry of new jobs in the US consumer confidence is its lowest. As seen in many other countries globally the cost of energy, domestic products and other living costs continue to rise.

Next week there are a few data releases could have the potential to cause some currency market movements. Wednesday 1 December will see the employment rate data and the manufacturing PMI figures, followed by non-farm payroll and services PMI figures on Friday 3 December.

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