Pound Sterling suffered its biggest daily decline yesterday in five months, falling a total of 1.5% against The Euro this week. This was after the German government committed to multi-billion investment across infrastructure and defence spending. Germany’s plans to borrow billions of Euro has sent their 10-year bond yields considerably higher. The rise in bond yields is clearly boosting Euro currency pairs as investors across the globe are snapping up bonds to take advantage of the better returns.
This can also be seen with Euro/USD currently sitting above 1.08. These changes mean Germany can now increase their percentage of GDP spend on defence and infrastructure from 1% to 2% which in turn could also lead to an increase in business sentiment and activity.
Moving onto today, we have The European Central Bank with their interest rate decision. Markets are fully expecting a cut of 25 basis-points, which will take their base rate to 2.5%. However, the path moving forward isn’t as certain after executive board member Isabel Schnabel told the Financial Times that it was more than likely time to start considering a pause to interest rate cuts.
We end the week tomorrow with the most volatile data release on the market, Non-Farm Payrolls. This month’s release will be key as it will provide the Federal Reserve with more cues on what can be done with interest rates. Any signs of persistent strength will undoubtedly give the governing council more room to play with and potentially keep rates higher for longer. Which would bring a sigh of relief and potentially claw back some gains for The US Dollar.
GBP/EUR 1.1923 GBP/USD 1.2871 GBP/AED 4.7275
GBP/AUD 2.0337 GBP/CHF 1.1409 GBP/CAD 1.8468
GBP/NZD 2.2457 EUR/USD 1.0787 GBP/ZAR 23.6219