Fed turn more hawkish

Jeremy Thomson-Cook
Jeremy Thomson-Cook 25 November 2021

GBPTenreyo not committing to rate hike in December or February

EURNew lows on the euro on weak German sentiment

USD: Continuing support for early taper by the Fed

Sterling

Sterling was at the mercy of the ever-bullish US dollar as it dropped below previous support levels and hit the lowest since December 2020. Against the euro however, it remained near the highs of recent days – which is near the best since February 2020.

The only news to note from the UK were comments made by BoE member Tenreyro, where she commented that she would not want to say that we could see a rate rise in December or February and that any decision would be backed by economic data. Similar rhetoric as BoE governor Bailey's comments yesterday about the BoE not providing forward guidance.

 

Euro

Remarks by Ifo economist Klaus Wohlrabe gave a damning assessment of the German economy. Wohlrabe commented that there was no let up of supply chain bottlenecks, that the majority of companies were planning price increases and he expects stagnation in the last quarter of 2021. The resurgence of Covid-19 cases in the past two months will also do little to ease these concerns.

News was also released yesterday that Germany’s new coalition government stopped outgoing Chancellor Angela Merkel’s plans for a two week lockdown to begin on Thursday. However we are expecting France to announce its latest Covid-19 measures this Thursday.

The euro fell to a new low versus the US dollar – lowest since July 2020.

 

US dollar

We had a deluge of US data yesterday with the US closed today for thanksgiving. The first set of data showed that Initial jobless claims came in lower than expected at 199,000, the second reading of US GDP for the third quarter came in lower at 2.1%, durable goods orders missed falling by 0.5% and the core inflation came in at 4.1% as expected. We saw the US dollar strengthen initially before giving back some of the gains later. The low levels of the jobless claims is a sign that the jobs market is improving faster than the Fed anticipated – likely to mean a faster taper or a swifter pace of interest rate hikes.

We also saw shift in sentiment from Fed member Daly saying that she sees the case for speeding up tapering. Her comments suggested that should the job market continue to improve and inflation continue to climb higher, then she sees the case for an acceleration of taper.

All in all positive news for the US dollar.

 

Market rates

Today's Interbank Rates at 08:35am against sterling movement vs yesterday.

Euro €1.189 ↓
US dollar $1.334 ↓
Australian dollar $1.853 ↓
South African rand R21.12 ↓
Japanese yen ¥153.9 ↑

 

Have a great day.