November could be sterling’s lucky month! The pound has rocketed almost 2 cents versus the euro overnight, an extremely sharp rise, to 1.1840, and may rise further in the weeks ahead. How come? Well, because the Eurozone’s economic outlook is a whole lot more dire than analysts thought until recently, and that’s dragging down the euro.
Chiefly, the common currency has been brought low, because Eurozone inflation fell to its lowest point since November 2009 last month, at just 0.7%. This has weakened the euro, because it raises the spectre of deflation, whereby prices, and wages, enter a negative downward spiral. In response, the European Central Bank could well cut interest rates below 0.5% next week, to further cut the cost of credit, and get the Eurozone growing again. However, if the ECB cuts, this will further bring down the common currency, because it makes Eurozone investments less attractive.
What’s more, the euro is also on the back foot, because joblessness in the currency bloc hit an all-time high in September, at 19,450,000 people. This tells us that the Eurozone’s so-called economic “recovery” has yet to reflect in more hiring, and is another reason for the weak euro.
With this in mind, there’s every reason to think November will be sterling’s month, and the pound will rise against the euro!