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Jeremy Thomson-Cook
Jeremy Thomson-Cook 24 November 2021

GBP: BoE to give up on forward guidance

EUR: ECB starting to turn less dovish

USD: Powell re-nomination

 

Sterling

Sterling continues to trade in a tight range as the push and pull of higher inflation versus lower growth continues. Recent commentary from Governor Bailey has been less hawkish which has led to interest rate markets moving from fully pricing in a December rate rise to now applying a 60% probability.

Doubts over the credibility of the BoE having guided the markets to expect a rate rise at the last MPC meeting and then not deliver have been growing, and Bailey definitely did not like being labelled the “unreliable boyfriend” like his predecessor Carney at the post-meeting press conference. This has very quickly led to Bailey now saying: “I do not think we will go back to a hard form of guidance” and “Not off the table that we give no guidance at all on rates" but says bank decisions are made meeting by meeting.

What does this mean; more uncertainty over the future path of interest rate rises, making each MPC meeting “live”, thus adding to more sterling volatility.

 

Euro

The single currency remains languishing close to yearly lows as increasing Covid related restrictions across many parts of Europe throw doubt over the nascent economic recovery. Despite less dovish commentary from some ECB members the euro has failed to rally as German lockdown fears in particular weigh heavily on the euro.

 

US dollar

The dollar continues to trade close to yearly highs as US Bond yields remain at very elevated levels. The announcement that Powell is to be re-nominated for another term as Fed Chair saw US yields rise and the $ index climb to another new high for the year as fears that a dovish Brainard would be elected to the helm receded. Yesterday’s co-ordinated SPR release by the U.S., India, China, Japan, South Korea and the UK saw the much-rumoured announcement have a marginal effect on bringing down the price of crude as this had been largely priced in with oil falling over 12% in the last few sessions in anticipation of the announcement.

 

Elsewhere

Despite New Zealand raising its interest rate by 0.25% as expected the currency has moved lower as some market participants were forecasting a rise of 0.5%.

 

Market rates

Today's Interbank Rates at 07:36am against sterling movement vs yesterday.

Euro €1.190 ↑
US dollar $1.338 -
Australian dollar $1.854 -
South African rand R21.17 ↑
Japanese yen ¥153.7 ↑

Have a great day.