MARKET NEWS

The GBPEUR exchange rate surged on the week to head for the 2021 highs above 1.1800. The energy crisis in the UK soothed, but traders also started to factor in European problems after Dutch gas futures prices also hit record highs. The driver of a 0.25% rise on Thursday in the pound sterling was the minutes of the latest ECB meeting, which showed the bank have discussed an extension to bond-buying once the pandemic program ends.

The GBP to EUR was trading above the 1.1750 level once more with UK employment ahead on Tuesday and GDP on Wednesday.

Busier week of economic data ahead for the GBP to EUR

The pound sterling versus the euro will have a busier week of economic data ahead after relying on news headlines last week.

The data will start on Tuesday with UK employment numbers coming in alongside German and European ZEW figures. The UK is expected to see an increase of 183k jobs, but the furlough program ended on September 30th and some caution may exist around future numbers.

With the GBP v EUR rising towards the yearly highs, there is another bout of important data on Wednesday as the latest GDP update for the three months to August is released. We will also get the latest German inflation report for year-on-year figures into September. That could put pressure on the ECB’s plans if Europe’s largest economy continues to struggle with higher prices.

Energy markets are also still a worry, but Russia cooled prices by saying it would release further gas stocks via Ukraine.

UK inflation tipped to soar to 7% according to swaps market

Germany is not the only nation hurting with inflation and Deutsche Bank chief credit strategist, Jim Reid, has said the UK may be facing runaway inflation of up to 7% as soon as April.

Reid said out that the surge in natural gas prices have contributed to push global inflation metrics to multi-year highs, with index-linked bonds now implying that the UK Retail Price Index (RPI) inflation will be 7% in April 2022.

As Reid added, this is also the month that the energy regulator Ofgem will update its price cap for utility bills. Typically, the RPI/CPI gap is around 1% but can be wider with higher energy prices.

“Regardless of which inflation gauge is used, it’s fair to say that the cost of living is going up fast. In any case, RPI is used by the UK government to set things like train prices and student loan rates. Some students could in theory be facing 10% interest on their student loans if this continues, 100 times the BoE base rate.”

However, “it is likely that the UK government will mitigate a lot of these impacts as many governments around the world are doing for the lower paid in order to offset the rise in energy costs. Expect this to be a recurring theme.”

This week will pivot around the pound sterling’s reaction to data at the yearly highs around the 1.1800 level.