British pound at its highest against the euro since February 2020

The pound hit its strongest point against the euro since February 2020 on Wednesday after British inflation hit its highest level in nearly a decade last month.

The pound rose 0.5% against the euro to over € 1.19, bringing it to its best week against the common currency since January 2021, as markets braced for a December rate hike. by the Bank of England while expectations of a similar move by the European Central Bank remained low.

The annual rate of increase in consumer prices in the UK reached 4.2% in October, according to data released Wednesday, more than double the central bank’s target and exceeding economists’ expectations for a 3.9% increase.

“There is a good chance that the base rate will hit 0.75% next year” from a current all-time low of 0.1%, said Dean Turner, UK economist at UBS Wealth Management.

Traders expect the BoE to be the first major central bank to raise borrowing costs after global rate-setters lower them to all-time lows in early 2020, Refinitiv swap-derived data shows interest rate.

On Tuesday, BoE Governor Andrew Bailey told a House of Commons committee he was “very uncomfortable” about UK inflation, which is due to rising costs of home energy, used cars and fuel.

The British currency also hit its highest level against the dollar for about a week, buying around $ 1.34.

The dollar index, which measures the US currency against six others, remained close to its 16-month high, boosted by bets that the US central bank would raise interest rates to an all-time high. next summer. Consumer price inflation in the United States hit a 30-year high of 6.2% through October, while retail sales also beat expectations.

The euro is near its weakest against the dollar since July 2020, at around $ 1.13. A JPMorgan emerging market currencies index fell to its lowest level since September 2020, reflecting concerns about higher costs for developing countries borrowing money and buying goods in dollars.

The Turkish lira fell 2.7% on Wednesday to a record low of 10.6 per dollar. The South African rand is at 15.5 per dollar, its weakest since March. The Mexican peso has also weakened, despite the country’s central bank raising interest rates at its four previous meetings.

While Turkey’s central bank has cut interest rates, rate regulators in Brazil, Russia, Chile and Colombia, among others, are seen as likely to raise them.

“They are doing it potentially at the expense of economic growth, which makes their stock markets less attractive,” said Tim Graf, head of macro strategy at State Street.

In equity markets, the Wall Street S&P 500 opened 0.1% lower, near its all-time high, after a better-than-expected corporate earnings season on both sides of the Atlantic which indicated that companies passed on higher costs to their customers.

The tech-focused Nasdaq Composite also fell 0.1% while the Stoxx Europe 600 rose 0.2%, on track for its latest closing record.

Other market movements:

  • The yield on the 10-year US Treasury bill, which sets the tone for borrowing costs around the world, held steady at 1.632 percent.

  • European contracts for natural gas for December delivery rose 6.1% to € 99.8 per megawatt hour due to a supply shortage as Russia also held back the increase in exports.

  • Asian stock markets mostly fell, with Tokyo’s Topix losing 0.6% and Hong Kong’s Hang Seng losing 0.2%.

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