The GBP to EUR exchange surged into the weekend after the latest European Central Bank minutes indicated further stimulus measures. The UK also saw house prices at a record high for the year. The UK was seeing its fuel and energy problems easing, while Europe was also dealing with record high energy prices.
The GBP v EUR was heading for the yearly highs above 1.1800 again after failing at that level twice this year.
European central bankers discussed further stimulus bond purchases
The key news for the week was that European Central Bank minutes said that policymakers considered a bigger reduction in asset purchases last month, while they also discussed a new bond buying program for next year to stabilise markets.
The central bank said some of its members had argued that markets have already prepared for the end of emergency support without problems.
“It was argued that a symmetric application of the Pandemic Emergency Purchase Programme (PEPP) framework would call for a more substantial reduction in the pace of purchases,” the minutes said.
“From this perspective, a pace of purchases similar to the level prevailing at the beginning of the year would be appropriate.”
Inflation is rising in the UK and Europe, but the Bank of England is likely to have to act first and traders are reacting to the slower pace of an ECB rate rise, alongside the confirmation that the bank will still be buying bonds next year as the market does not want them.
As Jim Reid, Chief Strategist at Deutsche Bank said of UK bonds:
“It would take a brave person to receive a low fixed income (government bonds) for any length of time with all the transitory, cyclical and structural inflation in the pipeline.”
Energy market soothed and UK house prices at record
The energy market issues were soothed in the UK after Ofgem placed some of the UK’s abandoned energy users with Eon. The fuel shortage issues were also slowing with only the South-East seeing problems with supply at retail outlets.
In the capital markets, surging energy prices were soothed after Russia’s President Vladimir Putin said the country would release more gas to Europe via Ukraine. In the US, the energy minister also said that the country could release some of its crude reserves to cool oil prices.
UK house prices were also seen rising in September at their fastest monthly rate since February 2007 due to a “race for space,” according to Halifax.
The group’s data showed that the average price of a home rose £4,400 to a new record high of £267,587. Property values were up 1.7% in September and 7.4% over the year. The price of detached homes were the biggest contributor, up £41,000 in the year, due to a desire to upsize in the lockdowns.
Halifax noted that the tapering of the stamp duty holiday was one factor that has pushed prices up. Continually low borrowing costs and a desire for larger properties also added to the rise.