Another positive data surprise from the UK economy helped sterling to continue to outperform its closest trading partners and register fresh one-month highs against the euro. However, the single currency bounced back later in the day as traders became nervous about whether or not the European Central Bank will announce a change to its monetary policy.
The Bank of England is predicted to stay on hold when it posts its decision on rates but the euro’s plunge in November reflects concerns that weak eurozone data will force the European Central Bank to add more monetary stimulus to the region. The delivery of any decision from President Mario Draghi will be key for the euro and the market’s reaction to any news is far from certain. The US dollar could drop sharply should the ECB announce no changes and US GDP data suggest that the Federal
Reserve will keep on printing money to support its economy.
Sterling
Positive data surprise leading to currency strength was again the theme for the British pound ahead of the Bank of England’s decision on monetary policy. As optimism about Britain’s economic recovery grows, the BoE is not expected to announce any changes to both interest rates and its quantitative easing total which would be another positive for the pound’s outlook. Investors widely expect the BoE’s next move on policy to be a rate rise; a view that may gather steam following next week’s Inflation Report should Governor Mark Carney announce stronger growth forecasts.
US dollar
The US dollar fell to an 8-day low against the British pound and could continue to decline as investors worry that US GDP data and critical jobs report will force the Federal Reserve to alter its position on monetary policy. The US dollar had rallied after the Fed’s policy statement last month left intact the idea of a stimulus taper in December. Economists expect initial US third quarter GDP report to show the world’s biggest economy slowing to an annual growth rate of 2 per cent from 2.5 per cent in Q2.
Euro
Retail sales fell by 0.6 per cent across the eurozone in September, adding to the case for an interest rate cut from the European Central Bank. Consumer spending figures follow recent inflation data which highlighted weakness in demand across the 17-member area. Many market participants expect President Mario Draghi and the ECB to respond with stimulus. The delivery of any decision will be key for the euro and the market’s reaction to any news is far from certain. The single currency tumbled to a six-week low against the US dollar amid expectations that the ECB would cut its benchmark interest rate this month.