EUR

The European Central Bank, as expected, kept its interest rates on hold and continues its bond buying programme. President Lagarde didn’t however completely convince currency markets that rising inflation could lead to an earlier than expected rate hike.

Despite ECB members previously stating multiple times that the current rise in inflation is transitory, subtle changes in the ECB’s recent repeated messages have caused some investors to begin to start placing early bets on an earlier than expected interest rate rise.

In response to Lagarde’s speech the euro rallied to month highs against the US dollar and peeled backed 0.3% against the pound. Another factor in USD losses was the Gross Domestic Product which only grew 2% against a forecasted 2.7% for September.

GBP

Sterling was also helped along by the weaker than expected US GDP data, allowing riskier assets to continue their recent upward run against safe-haven currencies.

A lack of political or economic news did however keep a cap on how high the pound could get, with the focus for the UK now shifting towards next week Bank of England’s monetary policy meeting. Investors have now priced in an 80% chance of a rate hike by year end.

We also saw a small drop in GBP/EUR, which was disappointing for the UK car production sector. British car production fell by 41.5% year-on-year to its lowest level for a September since 1982.

The drastic fall in car production has however been an issue seen worldwide rather than a UK-only issue, mainly being caused by computer chips that are unable to be delivered to meet the demand due to the pandemic and supply chain challenges.

Key announcements

09.00 – EU – CPI
09.00 – EU – GDP