The pound is finishing the week stronger against the euro – Sterling Update

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

GBP

This week has been relatively quiet on the data front for the UK, although the Bank of England’s Governor Andrew Bailey made headlines after he was quoted saying the UK’s outlook was the worst he’d ever seen in his career.

The Governor’s hawkish stance seems to have had a positive impact on the pound however, which is now sitting at around 1.2650. Dollar weakness is also contributing to its strength, with cooling inflation in the US potentially contributing to the sluggish growth in Treasury Yields, which can indicate caution in the markets.

With Bailey comments underpinning the performance of the currency pair so far this week, we’ll be looking closely at Federal Reserve Chair Jerome Powell’s speech later today.

On this side of the Atlantic, the pound is also finishing the week stronger against the euro. Europe’s CPI data (more on this below) showed inflation falling faster than expected across the region, putting Europe and the UK on different trajectories as we move closer to 2024.

The impact of this could be a wider divergence in market expectations around monetary policy. We are already seeing this with current interest rate forecasts, with the Bank of England expected to start cutting rates significantly later than both the European Central Bank and the Federal Reserve.

EUR

CPI Inflation data was released in Germany and Spain on Wednesday, with both the major European economies posting a slower-than-expected price growth. Germany’s CPI inflation rate fell to 3.2% in November, a drop of 0.6% from the previous month and below the market expectation of 3.5%. Spain’s CPI inflation told a similar story, also falling to 3.2%, despite market expectations it would flatline at the 3.5% posted in October.

Inflation data from France and Italy was also released yesterday morning and continued to follow the trend, falling more than expected to 3.4% in France, against the 3.7% forecast by markets, and to 3.6% in Italy. Eurostat’s estimate for the whole region placed the annual CPI inflation rate at 2.4%. European stocks rallied in the aftermath of the data releases, which could be the result of increased optimism over the slowdown of inflation. After a stronger first half of the week, the euro fell against the dollar following the releases, as inflation falling faster than expected could encourage the markets to bring forward their forecasts for the first rate cuts next year. As a result, the currency pair looks like it’ll close the week fairly flat overall.