The pound has come under added pressure after a report that highlighted that wage growth in the British labour market is still not keeping up with inflation. GBP EUR has slipped another 0.5% today taking levels down to a low of 1.1121. Although unemployment in the UK is at very healthy levels at 4.3% which is the lowest level since 1975, it is the higher inflation figure which arrived at 3% which is making it difficult for the Bank of England to prescribe the best medicine.
Thursday 2nd November sees the next Bank of England interest rate decision and it is very unclear whether or not the Bank will raise interest rates from 0.25% to 0.5%. A rate hike would likely see the pound rally slightly although with two members Dave Ramsden and Silvana Tenreyro highly likely to vote against a hike, it could be a close call on the day. In the meantime UK retail sales numbers also arrived considerably weaker than expected resulting in further losses for the pound today.
The Euro is also likely to see major volatility in the coming weeks as the markets second guess what the European Central Bank will do at its meeting next Thursday. This is such an important day for those clients looking to either buy Euros or sell Euros as whenever ECB President Mario Draghi comments on the subject there is normally major market reaction to his choice of words.
The Catalonian situation is also seeing an escalation of tensions. Madrid is considering seeking to impose direct rule using Article 155 of the 1978 constitution. Expect major fireworks and Euro volatility if this does occur. Saturday appears to be the next day when dialogue will continue before more drastic measures could be enforced which could result in civil unrest.
UK Prime Minister Theresa May has travelled to Brussels today for the two day EU summit although the conversation is more likely to revolve around structural reform and immigration rather than Brexit. Inevitably Brexit will make an appearance though and the EU have already said that there is not enough progress on the terms of the divorce settlement. The lack of progress is likely to prove negative for sterling exchange rates especially considering in the background there is a hardening of positions from those who championed Brexit. The no deal scenario is actively being pushed as a better alternative to give business clarity and this in the short term could see the pound weaken if this gathers momentum.
Those clients looking to buy or sell pounds should be aware that it will not be until December until the next opportunity is available to see if sufficient progress has been made. Those clients selling Euros for pounds may wish to secure at this stage to take advantage of the very attractive trading levels currently available
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