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25 Eastcheap 2nd Floor
London EC3M 1DE
United Kingdom

+44 (0) 20 3880 0575

help@privalgo.co.uk

Office Hours
Monday - Friday
8:00am - 5:30pm

Last week we spoke about how fresh CPI showed how eurozone inflation is heating up, and what impact it would have on the euro. A week later, and the much-awaited ECB Monetary Policy Statement has been and gone.

With the ECB’s — as expected — fairly dovish message on quantitative easing, we look at what happened to the euro and where it can go from here. In other news, we discuss what’s happening to cable and whether the UK economy can make it through a new wave of Covid cases unscathed.

If you think your business could be affected by any of the market news covered here, get a quote via the link below. We can discuss your requirements, offer you a rate and take you through some of our currency solutions.

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Patrick Oakley
Business Development Manager

As you’ve likely seen, yesterday the European Central Bank announced it will begin to slow down its quantitative easing programme. Not tapering as such, but what they call recalibrating.

In theory, this should be positive news for the euro. In reality, EUR/GBP dropped half a per cent in the wake of the news. That said, EUR/USD seems to be staying steady at roughly 1.184.

There’s a number of reasons why the euro didn’t receive a boost from Christine Lagarde’s announcement. One, it followed almost exactly what the markets were expecting, which means any leverage for the euro was already priced into the markets.

Two, the ECB lowered its inflation forecast to 1.4% from 1.5%. EUR bulls will be looking for an inflation target of 2%, which would meet the conditions for an interest rate hike.

John Hallahan
Business Development Manager

So far, today’s been a stellar day for cable. GBP/USD is on its way to breach 1.39 — the highest it’s been this month. This is partly down to pound strength and partly down to dollar weakness.

On the GBP side, Andrew Bailey’s somewhat out-of-the-blue announcement yesterday seemed to verify expectations that the BoE will raise interest rates in the first half of 2022.

On the topic of whether the UK economic rebound has met the required conditions to raise rates, Bailey announced that the Monetary Policy Committee was split down the middle (four votes on either side). Compared to MPC meetings in August, this is bullish news for GBP.

Meanwhile, renewed risk-on attitudes in global sentiment have been weighing heavy on the safe-haven dollar.

The markets will be looking at US PPI data today and hints of tapering from the Fed for forward guidance as to where the dollar can go from here.

Harrison Hickey
Business Development Manager

There’s no denying it, UK Covid cases are seriously on the rise — 272,334 new positive tests in the last seven days.

It’s debatable what impact this will have on the UK’s economic rebound. In one sense, the economy may be able to shrug off the worrying stats. Now, with the pingdemic over, people are able to go to work and spend money without the threat of self-isolation.

Indeed, Barclaycard reported a 15.4% increase in consumer spending in August compared with the same time in 2019. Such data suggests that there’s still an appetite for consumer confidence.

Other economists are suggesting that as cases rise, the risk of catching Covid could dissuade some consumers from going out. Even if you’re double jabbed, contracting the virus is not a good time — I can tell you that.

Add to this the ongoing supply chain issues and it’s clear that the UK economy is at risk of slowing down.

This is crucial news for the foreign exchange markets, and GBP in particular. The Bank of England’s decision to raise interest rates hinges on the UK economy’s health. By extension, so does sterling’s performance.

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