By Jonathan Lloyd
A busy week on the currency markets looks set to ramp up today with a key CPI report published in the UK this morning, followed by the Federal Reserve meeting this evening.
Inflation in the UK held at 3.8% in headline form for August, with Core CPI dipping to 3.6% as expected. Reaction in the Pound was relatively muted, although GBP/EUR has dropped away from this week’s high.
Yesterday labour data in the UK did little to shift investors from their belief that the Bank of England will hold rates steady on Thursday, likely causing some policy divergence between the UK and its G3 counterparts. Markets are currently pricing in a 25-basis point cut in the US tonight, with around 80 bps of easing expected from the FED by the end of January. In contrast, current forecasts are for only one cut from the BoE in the same time period, possibly arriving in November, with little expected from the ECB either.
GBP/USD rose to 2-month highs in the early part of this week and remains elevated, while GBP/EUR has been relatively rangebound. GBP sellers will of course be wary of the upcoming Autumn Budget, which will likely exert some pressure onto Sterling throughout the build-up. EUR/USD approached 4-year highs yesterday, with a weaker Dollar the catalyst.
Overall expect markets to remain volatile through the week and into next week, which also holds a number of key data releases. Speak to your currency consultant today to discuss the best ways to make your money go further.
Key events remaining this week.
Wednesday
Fed meeting including updated interest rate projections (dot plot)
Thursday
Bank of England meeting
Friday UK Retail Sales