GBP

Sterling traded at its highest level against the euro in 20 months today. The pound’s gains come after data released this morning showed UK inflation surging to a 10-year-high, bolstering expectations that the Bank of England will raise interest rates next month. The cost of living in the UK as represented by the Consumer Price index rose last month to 4.2% in annual terms, leaping from a 3.1% increase in September. Markets had been expecting a reading of 3.9%. This morning’s data, coupled with strong employment numbers yesterday, has resulted in Sterling futures markets pricing in a 100 % probability that the BOE will hike rates at their December meeting.

EUR

The euro has staged a comeback against the dollar, bouncing around half a cent after hitting a 16-month low in far east markets this morning. The policy divergence between the European Central Bank and the Federal Reserve Bank, continues to weigh on the single currency. Speaking on Bloomberg television yesterday, St Louis President James Bullard urged the central bank to adopt a more “hawkish“ policy in their next meetings to offset the inflation rise in the US. On the other hand, ECB Governing Council Member Olli Rahn reiterated that he was expecting inflation in the eurozone to ease next year. Inflation data for the bloc will be released later this morning.

USD

The dollar managed to break through key resistance levels in the Asian trading session against two of its major peers. Against the yen, the Greenback strengthened to levels not seen since 2017, while it traded at its highest level since July 2020 against the euro. Upbeat retail sales and rising US bond yields has helped propel the dollar index above 96.00, its highest level in 16 months.

Economic Calendar

10.00 EUR CPI index

13.30 US Housing starts