It was a great week for Euro buyers following hawkish commentary from the Bank of England stating that interest rates may have to go up in November/December which pushed the GBPEUR price to 1.1850- the highest we have seen since the pandemic began. The reason for the hawkish shift from the BoE is simple; inflation. Prices are going up in the UK and the best way to combat rising inflation is to raise interest rates, after the inflation report in November (Which is expected to show a big jump in inflation) the natural next step for the BoE is to hike rates. Higher interest rates strengthen a currency and the comments over the last week have been looked at favourably by Sterling bulls.
Though GBPEUR has moved higher, unfortunately, GBPUSD is still sitting below 1.40, this is due to economic sentiment globally and investors are still more comfortable sitting in the Dollar- however, if the BoE does raise rates later this year, I do expect a rally on Cable- by then the Fed would have begun tapering their QE and USD strength should come to a close for the year.
This week, the main data focus are speeches on Wednesday by the ECB and BoE- with traders looking for confirmation on the Central Banks hawkish tone. On Thursday, we have inflation data out for the UK, with a forecast slightly lower back to 3%- I am unsure if it will come out this way after the petrol issues and prices flying up for energy over the last 3 weeks, we may see a higher print, which only strengthens the case for raising rates, and would push GBP prices higher. On Friday we have flash PMI’s for the UK, which over time has become less relevant as a data release, the expectation is these come in a little weaker, but I am not expecting massive market reaction on this.