GBP EUR Exchange Rate: Week in Review October 30th

GBP EUR Exchange Rate: The Week Ahead January 22nd

The GBP to EUR exchange rate saw a new yearly high this week at 1.1900 before a two-day slump back towards 1.1800. Traders shrugged off a dovish ECB interest rate meeting and German unemployment also improved more than analysts had expected. A looming issue for Germany was another inflation jump to 4.5% and the highest levels since 1993.

The GBP EUR has failed on its path to the 2020 highs of 1.2000 and may take a breather ahead of the BoE rate meeting this week.

ECB still see inflation as transitory, but markets disagree

The highlight events of the week were the UK Autumn budget and Thursday’s interest meeting from the ECB. But she later clarified that it wasn’t for her to say if markets were wrong.

European Central Bank President Christine Lagarde tried to play down rate hike fears, hinting that market players might be getting ahead of themselves with their predictions.

The central bank decided to keep interest rates and monetary policy unchanged despite the ongoing inflationary pressures and Lagarde said inflation was only transitory on the same day that Germany saw inflation rise to 1993 levels.

Some market players are pricing in a rate hike before the start of 2023 with an expected 20-basis point hike for December 2022.

Lagarde said:

“Our analysis certainly does not support that the conditions of our forward guidance are satisfied at the time of lift-off as expected by markets, nor anytime soon thereafter”.

“We really looked and very deeply tested our analysis of the drivers of inflation, and we are confident that our anticipation and our analysis is actually correct.”

Alongside the inflation numbers from Germany were better-than-expected unemployment numbers and that will soothe some of the recent concerns for Europe’s largest economy.

Sunak budget seen as ‘fiscal tsunami’ without key initiatives

Rishi Sunak unveiled his Autumn budget with the Institute of Fiscal Studies saying that he used the pandemic as an excuse for a ‘fiscal tsunami’.

Paul Johnson, director of the IFS, said: “It is important to be clear. This is almost entirely a set of policy choices unrelated to the pandemic. What we have had is a Chancellor responding to the ever-increasing demands of the healthcare system on the one hand, and the increasingly dire plight of the likes of the justice, social care and prison systems, starved of funding for a decade, on the other.”

Mr Johnson told the BBC: “What he has done, I think, is used the pandemic as cover for what I think was probably necessary – a big increase in NHS spending which was funded by this increase in national insurance contributions and undoing some of these very big cuts which we have seen to the justice and further education and school system over the last decade.”

Chancellors have tended to split the cost of repairing the finances between tax rises and spending cuts, according to Carl Emmerson at the IFS.

George Osborne put 20% of the burden on higher taxes and 80% on spending restraint.

“Mr Sunak’s cure to the fiscal problem we have now is over 100pc of the damage being repaired through tax rises,” Emmerson added.

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