UK Gross Domestic Product figures were reported to be better than expected this morning when many were expecting there to be a fall.
UK economic data has been following something of a negative trend of late with many of the expected levels being missed. However, today there was better data which may encourage the Bank of England to raise interest rates on the 2nd November.
The reason for the optimism is that the UK economy isn’t struggling completely and it should be able to cope with a hike, to get some control over inflation levels rising.
European Central Bank Decision
Tomorrow could be a very volatile day with the European Central Bank (ECB) expected to change their monetary policy. The asset purchasing programme has seen the central bank buy bonds to the tune of €60bn a month and that’s expected to be at least halved. President of the ECB, Mario Draghi held back from changing the policy at the last meeting because the GBP/EUR exchange rate was close to falling to parity. Now that the rate is starting from a considerably higher level this should open the window of opportunity.
If Mr Draghi does deliver a hawkish speech and the emphasis is on changing the policy in a positive way then the GBP/EUR rate could fall back towards the 1.10 in a very short space of time.
That being said, if the ECB are dovish and they are not completely confident in making changes there could be a detrimental effect on the Euro. It’s quite rare in currency terms that there is a complete cliff edge decision. Yesterday the GBP/EUR rate fell over a cent after the €60bn changing down to €30bn was all but confirmed. However, today the rate has bounced back and it would appear that not everyone is confident of what the ECB will do.