Inflation numbers remain front and centre

Jeremy Thomson-Cook
Jeremy Thomson-Cook 08 November 2021

GBP: December in the balance

EUR: 1.15 still worth a look

USD: Watch out for inflation numbers

Sterling 

So where to now?

With sterling having had the weekend to compose itself at its new lower levels, the key question is now one of progress. Can we rebuild quickly or is this going to be a slow effort?

As long as the market believes that the Bank of England’s decision to initiate a policy of rate rises begins in December as opposed to February or later then sterling should retain some element of support. We have our doubts over December being the right time to hike too and therefore remain bearish on sterling’s prospects in the coming weeks.

Brexit news is also back on the front pages. A battle between the UK and the EU over the border in the Irish Sea may be amplified by the UK's threats to trigger the Article 16 protocol and wipe the slate clean of decisions made in the original Brexit deal.

Euro

EURUSD made a run at 1.15 on Friday but has yet to break that level. Given it is only 0.4% away from current market pricing you would think that this is a level that could be hit at any time but it is being defended stoutly.

USD

Friday’s US jobs number was strong with only one perceivable weakness. Wages were higher, more people were brought into the jobs market and the unemployment rate fell although the level of participation in the labour market fell.

When we boil this down to what it means for the USD, we have to maintain our bullishness on the dollar into the close of the year although this report will not make the Federal Reserve any more optimistic at the margin on the US economy. In fact, if you were negative on the economy before the report, you probably still are and if you were positive, then equally you are likely to still be optimistic.

US inflation numbers are due tomorrow and Wednesday and may be enough to stimulate further USD buying if investors push the narrative that the Federal Reserve is behind the curve and should raise rates sooner rather than later.

A speech by Fed centrist Richard Clarida this afternoon may give a hint as to the Fed’s positioning post that jobs number.

Elsewhere

While the yen may be one of the three biggest currencies in the world, news flow is light and there is a trend in place of weakness that should persist. As long as yields on US debt remain elevated, then the JPY should remain under pressure.

Market Rates

Euro

€1.165

US dollar

$1.346

Australian dollar

$1.820

South African rand

R20.22

Japanese yen

 ¥152.77

Have a great day.