- Pound (GBP) falls as the market mood sours
- European earnings are broadly downbeat
- Euro (EUR) rises after German business sentiment improves
- ECB President Christine Lagarde is due to speak
The Pound Euro (GBP/EUR) exchange rate is falling after small gains yesterday. The pair rose +0.02% yesterday, settling on Tuesday at €1.1479 and trading in a range between €1.1468 – €1.1520. At 10:30 UTC, GBP/EUR trades -0.17% at €1.1465.
The pound is falling lower as the market mood deteriorates on Tuesday, US treasury yields push higher, and earnings across Europe broadly disappoint.
Investors continue to digest the UK labour market data released on Tuesday, which while stronger than expected, was not sufficiently strong to change the view that the Bank of England is likely to keep interest rates unchanged in the November meeting show.
The Bank of England is likely to keep interest rates at 5.25% despite fears of a recession growing. Yesterday’s PMI data shows that business activity contracted again in October, highlighting the underlying the risk of recession in the second-half of the year.
However, with inflation still over three times the Bank of England’s 2% target level, the central bank is likely to keep interest rates high for an extended period of time amid uncertainty over how much of the impact of its 14 rate hikes so far has actually been felt in the economy.
Meanwhile, the euro is pushing higher after German business sentiment improved in October for the first time in five months.
The closely watched German Ifo business climate index surprised to the upside, rising to 86.9 in October, up from 85.8 in September. And coming in ahead of the 85.9 level for club y
However, one month does not constitute a new trend, and the survey is still in line with slowing GDP growth.
Yesterday, German PMI data suggested that a recession was untruly underway in the eurozone’s largest economy.
Meanwhile, data from the eurozone showed that banks were lending at the slowest rate in eight years seeing just 0.2% growth. Lending is taking a hit after a string of interest rate hikes, taking the ECB key rate to a record 4% high.
Looking ahead, ECB president Christine Lagarde is due to speak. Investors will be watching for comments over the potential direction of future interest rate hikes ahead of tomorrow’s ECB rate decision.
