- Pound (GBP) extends gains from last week
- Rising COVID cases on Pound traders’ radar
- Euro (EUR) falls on dovish ECB and rising COVID cases
- Eurozone consumer confidence
The Pound Euro (GBP/EUR) exchange rate is pushing higher on Monday, extending gains from last week. The pair surged across the previous week hitting a 20-month high of €1.1932 before easing slightly to close the week +1.75% at €1.1915. At 0.5:45 GBP/EUR trades +0.06% at €1.1922.
The Pound soared after both UK jobs data and inflation numbers came in ahead of expectations prompting bets that the Bank of England could raise interest rates as soon as the December monetary policy meeting.
UK inflation is running at 4.2%, well ahead of the central bank’s 2% target level. The jobs data was also encouraging suggesting that the UK labour market was holding up even as the government’s furlough support came to an end.
High inflation and an improving labour market could provide the conditions necessary for the BoE to hike rates on December 16th.
Heading into the new week COVID cases will be back on the radar. The number of cases in the UK remain high. Unlike cases on the continent which are surging and have weighed on demand for the Euro.
Austria has re-imposed lockdown restrictions and COVID cases in Germany hit 65,000 new daily infections, a record high. Concerns are rising that Germany, the Eurozone’s largest economy could be next to impose lockdown restrictions.
Last week, the Euro also came under pressure as policy makers from the European Central Bank continued to push back on the chances of an interest rate hike next year. President of the ECB Christine Lagarde said that “if we take any tightening measures now, it could cause far more harm than good”.
Looking ahead Eurozone consumer confidence data is due. Analysts are expecting consumer morale to slip slightly to -5.5 in November, down from -4.8 in October when it unexpectedly rose. The markets will be watching closely to see if rising prices and surging COVID cases is hitting consumer sentiment.
Looking further out German IFO business climate GDP data is due later in the week.