Europe’s inflation falls
Daily Currency Update
European CPI data came in below the previous and the forecast figure, dropping to its lowest level in over 2 years. Prices grew by 2.9% year-on-year in October which is a markable drop from the 4.3% seen a month earlier. The news now seems to cement the idea that the European Central Bank (ECB) is done with raising interest rates as a tool to tackle high inflation. ECB Policymaker held interest rates at 4% last week after the longest streak of interest rate rises in its history. The Euro has lost ground since the announcement, falling back below 1.0600 against the USD and above 1.1500 against the GBP. Market participants have moved away from the Euro on hopes that the ECB will cease interest rate hikes.Data elsewhere saw both the US employment cost index and consumer confidence beat the forecast. The labor data shows costs increased solidly in the third quarter amid strong wage growth. Due to the inflationary concerns this brings, this is indicating that the Federal Reserve (FED) could keep interest rates higher for some time. GBP/USD has continued to trade in narrow ranges, with the past 24 hours movement between 1.2125 and 1.2200.
Key Movers
It will be the US central bank that will attract the most attention on Wednesday, with the FED set to conclude its latest policy-setting meeting later today. No change is expected from today's meeting, but comments from Chair Jerome Powell will be scrutinized for any indicators of where interest rates are heading. Recent data from the US has shown a resilient economy which has predictions that a 25-basis point hike could be seen before the end of the year, with possibly another to follow in 2024. I would expect to see volatility in the USD in the build-up to the announcement, but also in the GBP with the Bank of England set to announce their interest rate decision tomorrow.Expected Ranges
- GBP/USD: 1.2090 - 1.2250 ▼
- GBP/EUR: 1.1430 - 1.1560 ▲
- GBP/AUD: 1.9050 - 1.9280 ▲
- EUR/USD: 1.0520 - 1.0660 ▼