EM Market Report Christmas Lights London

Markets getting into festive spirit

Thanim Islam
Thanim Islam 01 December 2022

- Powell signals risk of over tightening

- USD closes at worst monthly performance in a decade

- Risk appetite on the up

Yesterday

  • Eurozone inflation comes in lower than expected, now at 10% versus an expected 10.4%. Market pricing for December's hike is now closer to a 0.5% hike. The EUR retreated off highs versus the USD during the morning session.

  • USD continued to gain after GDP came in 2.9% vs 2.6% expected, US job openings fell to 10.3 million, and Core PCE inflation for the third quarter came in higher at 4.6% vs 4.5% expected. ADP payroll numbers did come in lower, but USD weakness from this was very short lived.

  • Fed Chair Powell suggested a 0.5% hike in December, and that rate hikes will be slower for longer. We then saw a dovish tilt, with Powell suggesting he doesn't want to risk over tightening and damaging the economy. USD extended losses hitting prior support levels and the 200-day moving average.
  • Equities rallied off the comments, taking risk currencies along for the ride. Comments from Chinese authorities that they are entering a new phase, with the Omicron variant weakening as more people get vaccinated, also cheered markets.

GBP vs G10

Against rates at 17:00pm, 30.11.22.

Currency pairs

Daily move (%)

GBPJPY

0.41%

GBPSEK

0.35%

GBPEUR

0.07%

GBPDKK

0.07%

GBPCAD

-0.24%

GBPUSD

-0.30%

GBPAUD

-0.34%

GBPNZD

-0.54%

GBPCHF

-0.56%

GBPNOK

-0.61%

Today

Market rates

Today's interbank rates at 10:12am against sterling rates yesterday.

Euro

€1.162

US dollar

$1.214

Australian dollar

$1.782

South African rand

R21.02

Japanese yen

¥165.5

Data points

EUR German Retail Sales - Oct

Consensus: -2.80%

Previous: -0.90%

EUR German Manufacturing PMI - Nov

Consensus: 46.7

Previous: 46.7

EUR Unemployment Rate - Oct

Consensus: 6.60%

Previous: 6.60%

GBP Manufacturing PMI - Nov

Consensus: 46.2

Previous: 46.2

USD Core PCE MoM - Oct

Consensus: 0.30%

Previous: 0.50%

USD Core PCE YoY - Oct

Consensus: 5%

Previous: 5.10%

USD S&P Manufacturing PMI - Nov

Consensus: 47.6

Previous: 47.6

USD ISM Manufacturing PMI - Nov

Consensus: 49.8

Previous: 50.2

Speeches

  • USD – Fed Bowman

  • EUR – ECB Lane and Elderson

Our thoughts

So, the dollar finished November with its worst monthly performance in a decade. Data will be paramount this month if USD has a chance of erasing recent losses, as clearly we can see hawkish Fed comments aren't having the desired effect. Core PCE and manufacturing data will be closely looked at today as well as tomorrow’s job data. As before, if we get data that is not supportive of the Fed keeping up with markets expectations of rate hikes, expect further USD weakness. We also need to remember the seasonal performance for USD, which tends to be negative.

Noise from China is still keeping optimism in markets and should that continue then AUD, NZD, and EUR should perform better. And, of course, that higher appetite for risk should be supportive for GBP.

 Should market narrative continue to support a weaker USD, then please speak to your dealer to discuss how to take advantage of any higher moves against USD. Limit orders are always a good option for clients looking to take advantage of any rate spikes.

Chart of the day

Fed Powell now seems concerned about over tightening causing markets to lower rate expectations for next year. As a result the USD index once again tested the November lows.

Should data not supportive the Fed’s narrative, then we could see the USD weaken into year-end.

01122022 cotdSource: Bloomberg Finance L.P.

Have a great day.