BoE comments leave Sterling struggling despite inflation growth

The pound had a topsy-turvy Tuesday, gaining briefly in reaction to the UK’s inflation data before sliding back on fluctuating Bank of England (BoE) rate hike expectations.

The euro also had a difficult day as political uncertainty in Catalonia and less-than-impressive domestic data took a toll.

GBP/EUR has returned to the cusp of €1.1200, while GBP/USD is trading in the region of $1.3174 and GBP/AUD is lingering around AU$1.6800.

How are the major currencies likely to move today? Read on to find out…

What’s been happening?

Tuesday turned out to be fairly interesting in terms of currency-moving events, with the UK’s inflation stats, Brexit concerns and Bank of England (BoE) commentary triggering shifts in Sterling.

The pound was initially boosted by the UK’s Consumer Price Index, with the rate of inflation hitting its highest levels for five years.

The report briefly upped the odds of the BoE increasing borrowing costs in November, but rate hike expectations were dealt a blow later in the day when central bank Governor Mark Carney expressed concerns about the impact of a ‘no deal’ Brexit scenario on the UK economy.

GBP exchange rates gave up their earlier gains, although GBP/EUR losses were limited as mounting tensions in Catalonia kept the single currency under pressure.

October’s ZEW economic sentiment surveys for Germany and the Eurozone also proved disappointing.

What's coming up?

The UK’s latest employment data is likely to be one of the main causes of currency movement today, with average earnings being the figures in focus.

Growth in average earnings excluding bonuses is expected to slow from 2.1% to 2.0%, with growth in earnings including bonuses stagnating at 2.1%.

It would take a positive surprise to give the pound a lift.

That being said, Lloyds Bank doesn’t feel that a lacklustre result will have much impact on the BoE’s policy plans. It commented; ‘We expect employment to have increased by 115k in the 3 months to August, while the unemployment rate is forecast to remain at 4.3%. Wage growth is likely to have remained relatively subdued for now but that seems unlikely to stop the Monetary Policy Committee from hiking UK policy rates on 2nd November.’

The euro, meanwhile, may react to the Eurozone’s construction output figures and speeches from European Central Bank (ECB) officials.

Today’s US news isn’t particularly high profile, but as long as the odds of the Federal Reserve increasing borrowing costs in December remain elevated the US Dollar will stay on its currently firm footing.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.