EUR remains on the back foot as Covid cases rise

Jeremy Thomson-Cook
Jeremy Thomson-Cook 18 November 2021

GBP: GBP recovers nicely

EUR: Covid risks rise

USD: Keep looking for strong employment

Sterling 

A slight pause in USD strength yesterday and the upswing from both inflation and jobs numbers in the UK coming out higher than expected has allowed GBPUSD to retrace above the 1.35 level this morning with GBPEUR back above 1.19. In fact, sterling has not been this strong against the single currency since February 2020. We look for it to top out around 1.1950 in the coming sessions but the euro does remain under pressure and further declines for the single currency are likely.

GBP strength has ignored the issues in Westminster for now but we have to think that Brexit distraction from local issues is never far away and would represent a downside risk for the pound.

Euro

News headlines on the continent are screaming about Covid case numbers with Germany hitting fresh 4th wave highs in the past 24hrs. For most of Europe this rise in cases will come at a difficult time; affecting a services sector at a time wherein the manufacturing sector is struggling with higher costs and supply chain concerns.

Chief Economist Lane speaks this afternoon and is normally good for a bit of euro weakness, so we’ll watch his speech eagerly.

USD

Focus is away from the USD this morning with rate decisions in Turkey and South Africa taking most FX focus. In the US we have initial jobless claims and a number of Fed speakers and herein is a microcosm of the new engine of dollar movement; can initial jobless claims further progress the view that the US economy is nearing full employment? And if so, what does that mean for Fed policy?

While the dollar might be taking it a little easy this morning, we still look for USD strength into the close of the year.

Elsewhere 

As we have noted above there are two key rate decisions in emerging markets today; Turkey and South Africa. Turkey is in a desperate state with a currency in freefall and full 1% cut in rates is forecast for this morning.

In South Africa the decision is more balanced and a hike of 25bps would be a surprise that could engender some rand strength into the close of the year.

Market rates

Euro

€1.191

USD

$1.349

Australian dollar

$1.852

South African rand

R20.95

Japanese yen

¥154.0

Have a great day.