European confidence under pressure

Jeremy Thomson-Cook
Jeremy Thomson-Cook 23 November 2021

GBP: Keeping an eye on Covid

EUR: Not much good news out there

USD: Powell confirmed, dollar lifts

 

Sterling

FX markets are not paying too much attention to the back and forth in Westminster currently and sterling is managing to keep its nose clean as a result.

The next big issue for the UK is the winter run of potential Covid-19 cases. Mainland Europe is being beset by some of the worst infection rates the continent has seen and while cases are still being seen here, we have not yet spiked higher as we did last winter.

The UK’s vaccination effort will help matters of course but a meaningful increase in infections will damage an economy whose service sector is doing all of the heavy lifting.

 

Euro

The surge in Covid infections is really doing a number on European confidence at the moment and should continue the recent decline in the value of the single currency. European PMIs released this morning are not likely to show the full decline in business confidence within the European economy but could easily set the single currency on a fresh path lower.

The longer that Covid remains the key story in Europe and rate rises are favoured elsewhere then times will be tough for the single currency.

 

US dollar

With current Fed Chair Jerome Powell being nominated for another term at the helm of the world’s most important central bank, the dollar strengthened yesterday as it further priced in interest rate hikes in the US next year.

With a lot of US data due on Wednesday ahead of the Thanksgiving break, we expect a slight pause in the dollar today although with issues everywhere else there is no reason to suggest the dollar may not strengthen simply on the weakness of its G10 counterparts.

 

Elsewhere

It’s all about New Zealand tonight with another 25bps hike priced in for the NZD at 1am. Such a move would take the policy rate in New Zealand to the highest level in the G10 and should continue the NZD’s outperformance over its antipodean cousin.

 

Market rates

Today's Interbank Rates at 08:22am against sterling movement vs yesterday.

Euro €1.189 ↓
US dollar $1.338 ↓
Australian dollar $1.854 ↑
South African rand R21.23 ↑
Japanese yen ¥153.5 ↑

Have a great day.