EM market report

USD sell-off continues

Thanim Islam
Thanim Islam 24 November 2022

- UK and EU PMIs come in better than expected, adding to risk appetite

- Dovish FOMC minutes and data causes USD to sell off

- Thanksgiving today, so expect less liquidity


After a quiet start to the week, finally we got some price action with the pound being the big winner of the day. Reasons for the move were the better-than-expected PMI data in both services and manufacturing, the supreme court ruling against the possibility of a Scottish referendum (this negating political uncertainty for next year), BOE chief Economist Huw Pill stating more hikes to come to combat inflation, as well as continued appetite for risk in the markets.

Eurozone PMIs also came in better as well lending support to the EUR.

The USD however over the course of the afternoon sold off quite hard after PMI data came in worse than expected for November, and the University of Michigan’s 1-year inflation expectations came in lower as well.

Heading into the evening, the FOMC minutes revealed that Fed members were in favour of easing the pace of rate hikes, with monetary policy approaching a sufficiently restrictive level, suggesting we will see a 0.50% hike in December. Various officials still see terminal rates at a higher level than what markets are pricing now, and economists at the Fed raised the possibility of a recession to 50% - the first warning by the Fed since it started hiking rates in March.

Over in China, Covid infections surpassed the high that we saw in April as the country continues to consider easing their Covid policy. Focus from the country now seems to be about growth, with authorities signalling more monetary stimulus which could be announced as early as Friday.

GBP v G10 

Against rates at 17:00pm, 23.11.22

Currency pairs  Daily move (%)
GBPUSD 1.38%
GBPCAD 1.28%
GBPEUR 0.56%
GBPDKK 0.50%
GBPCHF 0.42%
GBPJPY 0.25%
GBPAUD 0.17%
GBPNZD -0.11%
GBPNOK -0.28%
GBPSEK -0.33%


Market rates 

Euro  €1.160 ↑
US dollar $1.208 ↑
Australian dollar $1.789 ↓
South African rand R20.44 ↓
Japanese yen  ¥167.6 ↓

Data points 

EUR German IFO Business Climate - Nov
Consensus: 85
Previous: 84.3

EUR German IFO Current Assessment - Nov
Consensus: 93.8
Previous: 94.1

EUR German IFO Expectation - Nov
Consensus: 77
Previous: 75.6

EUR Monetary Policy Meeting Accounts
Consensus: n/a
Previous: n/a

NZD Retail Sales QoQ - Q3
Consensus: -3.40%
Previous: -2.30%

JPY Consumer Price Index YoY - Nov
Consensus: 3.60%
Previous: 3.50%


GBP – BoE Ramsden, Pill, and Mann
EUR – ECB De Guindos, Schnabel

Our thoughts 

With the US Thanksgiving holiday today, liquidity will be thinner so we could see big swings in rates over the next couple of days.

Euro data points are the only major data points today, as well speeches from BoE members and ECB members. With equity futures looking to open higher the FOMC minutes perceived to be dovish, and the possibility of China announcing stimulus measures tomorrow, appetite for risk seems to be on the up, further moves higher particularly over the USD can’t be ruled out with a test of the 200-day average on the GBPUSD pair, and a possible test for the highs seen in August.

Chart of the day 

PMIs were in focus yesterday with data sets from the UK and Europe coming in higher than expected, although the composite of services and manufacturing both suggest that activity is still contracting.

However, the US composite figure came in lower than both the UK and Europe figure, and also came in lower than expected suggesting perhaps the US economy is in worse shape than what most people think?

Not a surprise really then that Fed economists say there is a 50% chance of a recession in the US.

24112022 cotd

Source: Bloomberg Finance L.P.