Market Update - GBP EUR

Last Wednesday's quarterly inflation report put sterling on the back foot, sending it reeling down towards the key 1.10 level. It wasn't so much the data that hurt, since we already knew that inflation had declined to just 1.1% in September. Gloomy comments by governor Mervyn King kept markets guessing over whether further quantitative easing is in the pipeline. "We have a completely open mind as to whether to do more asset purchases..." was the phrase that sterling didn't like. However, by Thursday the pound was bouncing back as the wider market decided that the comments were designed to avoid any further disappointment should the bank chose to extend the QE programme. That could be symptomatic of the general sterling trend lately. An initial kneejerk reaction to bad news/comment seems to be followed by a swift rebound. As we've said before in these updates, "what should go down and doesn't go down can only go up". That's just a common market proverb and we shouldn't be unduly optimistic; but like all proverbs, it does carry some truth, and we would not be surprised to see sterling continue to rally if we can vault the 1.1235 highs set last week.

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Labels: eur-update