Lowest Inflation in 2 Years – Sterling Update

Here’s the latest currency news from our partner Moneycorp, to help you find out what your money is worth.

GBP  

 GBP/EUR ranged has in the 1.14-1.1450 area in the last few weeks with little signs of changing substantially. While GBP/USD is sitting at around 1.24. 

Rishi Sunak began his cabinet reshuffle on Monday morning, with Suella Braverman the first to be replaced by former Foreign Secretary James Cleverly. As Cleverly assumed the position of Home Secretary, former Prime Minister David Cameron made a surprise return to government as the new Foreign Secretary.  

The reshuffle has ignited speculation of an early general election next year. Political change can be a significant driver of currency movement, so we’ll be keeping an eye on the pound as further changes are expected to come next week. 

The UK’s CPI Inflation data was released on Wednesday, posting the lowest level in 2 years. Headline inflation fell from 6.7% in September to 4.6% in the twelve months to October, representing the most significant inflationary slowdown since 1992. The figures came in below the Bank of England’s and market expectations, which forecast a reading of 4.8%. 

This will be welcome news to Prime Minister Rishi Sunak, who has now fulfilled his pledge to halve inflation by the end of the year. The data has also fuelled speculation about the Bank of England’s next move surrounding interest rates. 

According to the Office of National Statistics this morning, UK retail sales fell by 0.3% during October. Forecasts had anticipated a return to growth last month after negative readings in the total value of inflation-adjusted retail sales for the three previous months. 

The report cited consumer cutbacks as the reason behind the surprise fall, which could add more weight to the outlook that interest rate hikes are beginning to impact the economy. Online and in-store sales have been at their lowest since February 2021, when Covid restrictions were in place.  

The result saw the pound fall against the dollar, following a 2-cent gain since the weekend. The pairing has now fallen from its 1.25 peak at the start of Friday’s trading session to 1.2370. 

EUR 

After a very quiet week on the data front last week, we saw Europe’s growth and employment change data released earlier this week. The European Union’s statistics office, Eurostat, reported the collective GDP of the 20 countries sharing the euro fell 0.1% between July and September, compared to the previous quarter.  

However, there was better news for the EU concerning employment, which rose by 0.3% in the same period. This contributed to an overall 1.4% year-on-year growth in employment across the region.  

 A slump in growth is often reflected in a similarly negative trend in employment. However, the data seems to point to more resilience in the labour market than would perhaps be expected.  

 From a currency perspective, the light volume of incoming data hasn’t negatively impacted the euro, which has risen to a two-and-a-half-month high. The single currency is now sitting at almost 1.09 against the dollar – 4 cents higher than mid-October when we saw the dollar index (DXY) peak at 1.07. The DXY has now fallen back to 104.30 – the lowest since early September – which could signify that the euro’s gains have mainly resulted from the dollar’s weakness. However, the slight euro strength should not be discounted.