EUR/GBP Drops to 21-Month Low as UK Inflation Rises 4.2%
EUR/GBP slips to a 21-month low on increased inflation fears. UK consumer prices rise 4.2% to a 10-year high, beating forecasts.
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Principal Points
- EUR/GBP drops under 0.8400, hitting a 21-month low, as UK inflation fears boost the pound
- Traders bet the Bank of England would soon raise interest rates to cool accelerating prices
What’s Moving in the Markets?
The British pound rose to its strongest level against the euro since early 2020 as the EUR/GBP dipped below 0.8400. Traders in currency markets flocked to the sterling in bets that the Bank of England would soon raise interest rates.
On Wednesday, the EUR/GBP dropped by half a percent to reach a 21-month low of 0.8384. In detail, the significant decline was caused by the news that UK inflation hit its highest level in almost a decade. That said, the annual rate of consumer price increase accelerated 4.2% in October.
In other words, this was the biggest inflation jump since 2010. It was also more than double the Bank of England’s target of 2%. At the same time, projections for the inflation rate in October stood at 3.9%.
Moreover, the EUR/GBP exchange rate has been in a steady decline this year. More specifically, the euro has lost about 7.4% against a stronger British pound. This week alone, the currency pair has lost nearly 1.8% to trade at current levels of 0.8380.
What’s the Big Picture for Traders?
Against this backdrop, inflation has been a major concern for central banks. While the Bank of England considers raising interest rates, the European Central Bank warned of “exuberance” in the financial markets.
With this in mind, ECB’s Financial Stability Review, a biannual report, says risks in financial markets “are building up.”
To curb rising inflation, the ECB announced it will slow its bond-buying. In other words, the euro zone’s bank will be purchasing fewer bonds to cool down surging consumer prices.
It’s worth noting that the Federal Reserve and other central banks in developed economies have been pouring fresh liquidity in markets. As a result, this has led to lofty record-high valuations of stocks across the board.
On this note, the US Federal Reserve is expected to wind down its own bond-buying by $15 billion this month.
What’s New in Cryptocurrency Markets?
Meanwhile, in cryptocurrency markets, major digital assets have pulled back from their highs set last week. Further, the price of bitcoin is about 12% lower from its record high of $69,000 set last Wednesday. More precisely, bitcoin is currently trading near $60,000 apiece.
Ether, the second-most valuable cryptocurrency, has also fallen from its all-time high of $4,860. Presently, the Ethereum coin is changing hands near $4,230.
Despite the recent selloff, crypto backers stay positive for the future of cryptocurrency. Many analysts point to the strong institutional support as a sign the crypto space will continue to grow.
What to Watch in the Markets?
On Thursday, the wider financial markets will be focused on the US jobless claims. The report will highlight if the weekly pace of filings for unemployment benefits continues to drop. The news is expected to arrive today at 08:30 am EST.