Uncertain week ahead for the Pound

Hi everyone,

 

It's another big week ahead in the currency market with not one, but two key central bank meetings. First up, we will see what the Fed will do with interest rates on Wednesday evening and then it's over to the BoE for the same on Thursday at midday. 75bp are expected for both, but there is a strong case 50bp may be the outcome. 

 

Last time out, it was the economists who predicted correctly the BoE result, which the market was not prepared for and caused a £ sell-off. That call is much tougher this month and so if 50bp is the call, it would be 'understandable' and cause less chaos in the market. The best case scenario for the BoE would be to follow the ECB & Fed and increase rates by the expected 75bp, which would keep the Pound at current (relatively) favourable levels. 

 

The Pound did start the day/week strongly across the board earlier today, hitting a fresh 2-month high versus the Euro and a 7-week high against the Dollar. However, as we usually see at the end of every month and in the run up to a big event (profit taking, placing new positions and bets on interest rates by traders) GBP has fallen back and is trading around the same levels as Friday now.

 

Elsewhere, the Euro-Zone published some worrying economic data this morning starting with a new record high inflation number. 10.3% was forecast, but 10.7% was the result due to rising fuel prices. In fact, the average German household is now paying 173% more on energy bills compared to a year ago. 

 

The Bloc did manage to post GDP growth for the quarter, but just about (0.2%) and next time are very much expected to show a negative figure. With winter approaching, consumer confidence at historic lows, retail sales consistently down and wage growth at a multiple-decade low, the outlook is very bleak, just as it is in the UK. 

 

 

 
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