Top Currency Pairs (Monday 18th October 9:00 UTC):
GBP/USD: 1.37203 (Last week: 1.36447)
EUR/USD: 1.15819(Last week: 1.15718)
GBP/EUR: 1.18464 (Last week: 1.17914)
The Pound has started the week very strong, especially against the Euro, opening just shy of the yearly high set on Friday. Traders are pricing in the prospect of a December rate rise from the Bank of England, with CME Group calculating a 72.4% chance. The last few times the Pound has surged like this, further gains have been denied by Covid-19 cases. Sunday's figures revealed cases have escalated beyond 45,000 once again, marking the fifth day in a row of cases exceeding 40,000. This is not promising news for the Pound should cases continue to head in that direction.
Highlighted news from Europe this week involved the Green Party voting to formally join talks to be part of Germany's next coalition. A swift conclusion to the German leadership would definitely help the Euro regain some of the ground it has lost against the Pound and Dollar. Meanwhile, there is still no indication that the European Central Bank have shifted their stance on inflation being 'transitory', with every chance that they will tighten monetary policy long after the Federal Reserve. This could lead to EUR/USD weakness heading into Q4 and beyond.
The potential for Dollar strength is based on expectations that the Federal Reserve may hike rates sooner rather than later. The Dollar rallied since early September, but with the Bank of England's recent hawkishness, it seems forecasts may have been overblown, leaving the Dollar to consolidate. Last week's Federal Reserve meeting minutes revealed that although tapering is almost certain to begin this year, they are still very divided in how to deal with inflation, with the BoE looking likely to act first.
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Disclaimer: This is not investment advice; it is for informational purposes only.