Sterling v Euro hits a sweet spot
Well we wasn't wrong with our expectation of a rather 'boring' week on the market last week and neither our suggestion of a volatile one this week. Each day so far has seen more action than all of last week put together. Here's what has happened..
A flat Monday morning suddenly burst into action mid-afternoon after unexpected positive comments from BoE Governor Bailey. He explained the BoE would be more inclined to raise rates if there was no unemployment surge next month. Basically not ruling out a hike in December. 0.7% was gained on the € with the single currency playing the 'sitting duck role' at the moment on the market.
A further 0.6% was made yesterday morning following the UK's strong job numbers. Now this was even more of a surprise as the releases came out as forecast and have nothing to do with the furlough scheme coming to an end. Unemployment ticked lower, more people are in jobs and there is a record number of job vacancies available. All good news yes, but not sure if the data deserved the rise. Sterling did dip shortly after the release before rebounding again towards the end of the day.
Then this morning for a very brief moment, £-€ hit a new 2021 high after UK inflation came in much hotter than expected. GBP v EUR spiked another 0.6% on release, but quickly dropped 0.3% or so as the market cooled. The inflation rate now sits at 4.2%, smashing last month's high figure of 3.1% and more than forecast (3.9%). It means once again the market is expected the BoE to act next month.
This is a tricky situation for anyone with € to sell, as right now it's the worst time to do so in 20-months. However, it could get worse in a few weeks time if the BoE finally raise rates. For anyone looking to buy €, we have arrived at the same sweet spot as mid-October (20-month high), so you have a good headache to deal with in deciding to stick or twist.